X	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006
	OR
	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________________ to ______________________________

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |_|

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity sold, or the average bid and asked price of such common equity, as of March 30, 2007 was $7,806,450. Stock held by directors, officers and shareholders owning 5% or more of the outstanding common equity (as reported on Schedules 13D and 13G) were excluded as they may be deemed affiliates. This determination of affiliate status is not a conclusive determination for any other purpose. The number of shares of the registrant’s common equity outstanding as of March 30, 2007 was 67,809,204.

Certain statements contained or incorporated by reference in this Annual Report on Form 10-KSB constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Such risks and uncertainties include, among others, history of operating losses, raising adequate capital for continuing operations, early stage of product development, scientific and technical uncertainties, competitive products and approaches, reliance upon collaborative partnership agreements and funding, regulatory testing and approvals, patent protection uncertainties and manufacturing scale-up and required qualifications. While these statements represent management’s current judgment and expectations for the company, such risks and uncertainties could cause actual results to differ materially from any future results suggested herein. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising after the date hereof.

Protein Polymer Technologies, Inc., a Delaware corporation, is a biotechnology company incorporated on July 6, 1988. We are engaged in the research, development and production of bio-active devices to improve medical and surgical outcomes. Through our patented technology to produce proteins of unique design, biological and physical product components are integrated to provide for optimized clinical performance. Additionally, we are committed to the acquisition of faster-to-market medical products in certain complementary growth markets.

We are focused on developing products to improve medical and surgical outcomes, based on an extensive portfolio of proprietary biomaterials. Biomaterials are materials that are used to direct, supplement, or replace the functions of living systems. The interaction between materials and living systems is dynamic. It involves the response of the living system to the materials (e.g., biocompatibility) and the response of the materials to the living system (e.g., degradation). The requirements for performance within this demanding biological environment have been a critical factor in limiting the myriad of possible metal, polymer, and ceramic compositions to a relatively small number that to date have been proven useful in medical devices implanted within the body.

The goal of biomaterials development historically has been to produce inert materials, i.e., materials that elicit little or no response from the living system. However, we believe that such conventional biomaterials are constrained by their inability to convey appropriate messages to the cells that surround them, the same messages that are conveyed by proteins in normal human tissues.

The products we have targeted for development are based on a new generation of biomaterials which have been designed to be recognized and accepted by human cells to aid in the natural process of bodily repair, (including the healing of tissue and the restoration or augmentation of its form and function) and, ultimately, to promote the regeneration of tissues. We believe that the successful realization of these properties will substantially expand the role that artificial devices can play in the prevention and treatment of human disability and disease, and enable the culture of native tissues for successful reimplantation.

Through our proprietary core technology, we produce high molecular weight polymers that can be processed into a variety of material forms such as gels, sponges, films, and fibers, with their physical strength and rate of resorption tailored to each potential product application. These polymers are constructed of the same amino acids as natural proteins found in the body. We have demonstrated that our polymers can mimic the biological and chemical functions of natural proteins and peptides, such as the attachment of cells through specific membrane receptors and the ability to participate in enzymatic reactions, thus overcoming a critical limitation of conventional biomaterials. In addition, materials made from our polymers have demonstrated excellent biocompatibility in a variety of preclinical safety studies.

Our patented core technology enables messages that direct activities of cells to be precisely formulated and presented in a structured environment similar to what nature has demonstrated to be essential in creating, maintaining and restoring the body’s functions. Our protein polymers are made by combining the techniques of modern biotechnology and traditional polymer science. The techniques of biotechnology are used to create synthetic genes that direct the biological synthesis of protein polymers in recombinant microorganisms. The methods of traditional polymer science are used to design novel materials for specific product applications by combining the properties of individual “building block” components in polymer form.

This ability is fundamental to our current primary product research and development focus — tissue repair and regeneration. Tissues are highly organized structures made up of specific cells arranged in relation to an extracellular matrix (“ECM”), which is principally composed of proteins. The behavior of cells is determined largely by their interactions with the ECM. Thus, the ability to structure the cells’ ECM environment allows the protein messages they receive — and their activity — to be controlled.

Our primary products under development are based on protein polymers combining selected properties from two of the most extraordinary structural proteins found in nature: silk and elastin. Silk, based upon its crystalline structure, has long been known as an incredibly strong material, and has a long history of medical use in humans as a material for sutures. Elastin fibers are one of the most remarkable rubber-like materials ever studied. Found in human tissues such as skin, lungs and arteries, elastin fibers must expand and contract over a lifetime, and can be extended nearly three times their resting length without damaging their flexibility.

Despite the incredible individual properties of silk and elastin, neither of these natural protein materials is capable of being processed into forms other than what nature has provided without destroying their valuable materials properties. However, our proprietary technology has enabled the creation of polymers that combine the repeating blocks of amino acids responsible for the strength of silk and the elasticity of elastin. New combinations of properties suitable for various medical applications have been created by precisely varying the number and sequence of the different blocks in the assembled protein polymer,.

We have also created protein polymers based on repeating blocks of amino acids found in two other classes of structural proteins found in nature: collagen and keratin. Collagen is the principal structural component of the body, found in some shape or form in virtually every tissue, ranging from shock absorbing cartilage to light transmitting corneas. Keratin is a major component in hair, nails and skin. The development of materials based on these polymers is at an early stage of research.

We are focused internally on developing protein polymers that are useful in products for (1) soft tissue augmentation, (2) tissue adhesives and sealants, and (3) drug delivery devices. Our products are based on a new generation of biomaterials designed to aid in the process of bodily repair by promoting the healing of tissue and restoration or augmentation of its form and function. These platform biomaterials are genetically engineered, high molecular weight proteins, processed into products with tailored physical structure and biological characteristics.

Our internal product development efforts are targeted toward a variety of markets based on a common biomaterials platform. These include: injectable disc nucleus for the treatment of injured or degenerated spinal discs, strong and fast-setting, resorbable surgical sealants for use in general and cardiovascular procedures following primary wound closure, adhesion barriers, scaffolds for wound healing and tissue engineering. Other markets of interest, which are in an earlier stage of development, include those for drug delivery devices.

We also have also developed coating technology that can efficiently modify and improve the surface properties of traditional biomedical devices. Our primary goal is to develop medical products for use inside the body with significantly improved patient outcomes as compared to current products and practices.

All of these product candidates are subject to preclinical and clinical testing requirements for obtaining FDA and international regulatory authorities’ marketing approvals. The actual development of product candidates, if any, will depend on a number of factors, including the availability of funds required to research, develop, test and obtain necessary regulatory approvals; the anticipated time to market; the potential revenues and margins that may be generated if a product candidate is successfully developed and commercialized; and the Company’s assessment of the potential market acceptance of a product candidate.

Surgical Tissue Sealants (STS): Certain tissue adhesives and sealants that seek to avoid the limitations of sutures, staples, pins and screws have been developed and marketed for a number of years outside the United States by other parties. In the United States, approved products have fallen into several categories. DermaBond® (not our trademark), a synthetic cyanoacrylate adhesive, is approved for topical application to close skin incisions and lacerations. Cyanoacrylate adhesives set fast and have high strength, but form brittle plastics that do not resorb. This limitation restricts their use to bonding the outer surfaces of skin together. Tisseel® (not our trademark), a fibrin sealant, is approved for use as an adjunct to hemostasis in surgery. Fibrin sealants have excellent hemostatic properties, but are derived from human and/or animal blood products, set slowly, have low strength, and lose their strength rapidly.

A third category of tissue adhesives combines natural proteins such as collagen or albumin with synthetic cross-linking agents such as gluraraldehyde. Such products were originally marketed in Europe for limited, life-threatening indications and the FDA approved one such product, BioGlue® (not our trademark), in 2001 for use as an adjunct to sutures and staples in open surgery to repair large arteries. The aldehyde cross-linking agents employed in such products (i.e., glutaraldehyde, formaldehyde) are known to cause adverse tissue reactions. DuraSeal® (not our trademark), a sealant product composed of a synthetic polymer called polyethylene glycol, is a relatively weak sealant approved for use in neurosurgery. To date, none of the products available in the U.S. for use inside the body have found widespread acceptance among surgeons, for reasons ranging from their lack of performance based on properties such as adhesiveness, flexibility, and resorption rate, complexity of use, or concerns about the perceived benefit to risk.

We have developed surgical adhesives and sealants that are easy for the surgeon to use, and that combine the biocompatibility of fibrin glues (without the risks associated with use of blood-derived products) with the high strength and fast setting times of cyanoacrylates. Unique features include significant strength and elasticity within the adhesive matrix (to move as tissues move) and the capability of tailoring the resorption rate of the adhesive matrix to the rate at which the wound heals. A non-resorbable adhesive or sealant can only be used where the damaged tissues are not going to grow together. Otherwise, a barrier to wound healing is unavoidably created.

We have demonstrated both the adhesive performance and the biocompatibility of our product formulations in preclinical studies, including resorption of the adhesive matrix in conjunction with the progression of wound healing. As a result of our evaluations of the unmet surgeon needs, the properties achievable with our technology, and the capabilities of competitive technologies, specific applications providing the most significant opportunities have been targeted.

Our tissue adhesive technology combines a silk-elastin polymer designed specifically to react with a biocompatible cross-linking agent under physiological conditions. Two fluid components are mixed just prior to their delivery to the treatment site, which can be accomplished through a fine gauge needle and in

Wound Healing & Tissue Regeneration: The current market for wound care products is highly segmented, involving a variety of different approaches to wound care. Products currently marketed and being developed by other parties include fabric dressings (such as gauze), synthetic materials (such as polyurethane films) and biological materials (such as growth factors and living tissue skin graft substitutes). While the type of product used varies depending on the type of wound and the extent of tissue damage, we believe that a principal treatment goal in all instances is to stimulate wound healing while regenerating functional (as opposed to scar) tissue.

We have developed protein polymers that we believe may be useful in the treatment of dermal wounds, particularly chronic wounds such as decubitous ulcers, where both reconstruction of the extracellular matrix ("ECM") and re-establishment of its function are desired. These polymers, based on key ECM protein sequence blocks, are biocompatible, fully resorbable and have been processed into gels, sponges, films and fibrous sheets. We believe that such materials, if successfully developed, could improve the wound-healing process by providing physical support in situ for cell migration and tissue regeneration and as delivery systems for growth factors. Additionally, such materials may serve as scaffolds for the ex vivo production of living tissue substitutes.

Urethral Bulking Agent (UBA) - Polymer 47K: UBA effectively relieves female stress incontinence by injecting liquid that rapidly changes to long-lasting solid bulk to the tissue surrounding the urethra. Our UBA injection procedure, an alternative to surgery, most often requires only one treatment. UBA is a more effective and longer lasting bulking agent than the competition. The UBA gel is resistant to migration. A closure report has been filed with the FDA .

Dermal Filler Device: The soft tissue augmentation materials technology underlying the incontinence product has the potential to be useful in a number of other clinical applications. In November 2000, the FDA approved our investigational device exemption to begin human clinical testing of a tissue augmentation product based on this technology for use in cosmetic and reconstructive surgery applications. The product is injected into or under the skin for the correction of dermal contour deficiencies (facial lines, wrinkles, scars, etc.). In April 2001, we initiated human clinical testing of the product. Based on a number of factors, including the projected time to market, the competitive environment, the uncertainty of achieving our product design goals, and the expenses associated with the program, we have decided that it is in the best interests of the Company not to continue our independent development efforts for this product.

Preclinical and clinical testing of potential medical device products, where the results will be submitted to the FDA, requires compliance with the FDA’s Good Laboratory Practices (“GLP”) and other Quality System Regulations (“QSR”). We have implemented, and continue to implement, polymer production and quality control procedures, and have made certain facilities renovations to operate in conformance with FDA requirements. We believe our current polymer production capacity is sufficient for supplying our development programs with the required quality and quantity of materials needed for feasibility and preclinical testing and initial (“pilot”) clinical testing. We will require additional manufacturing capacity to expand beyond initial clinical trials.

We are considering several methods for increasing production of our biomedical product candidates to meet pivotal clinical trial and commercial requirements. For example, we may reconfigure our existing facility to produce needed quantities of materials under FDA’s GLP and QSR requirements for clinical and commercial . Alternatively, we may establish external contract manufacturing arrangements for needed quantities of materials. However, we cannot assure that such arrangements, if desired, could be entered into or maintained on acceptable terms, if at all, or that the existence or maintenance of such arrangements would not adversely affect our margins or our ability to comply with applicable governmental regulations. The actual method or combination of methods that we may ultimately pursue will depend on a number of factors, including availability, cost and our assessment of the ability of such production methods to meet our commercial objectives.

Local Drug Delivery: Oral delivery of drugs is the most preferred route of administration. However, for many drugs this is not possible, and alternative drug delivery routes are required. Alternative routes include transdermal, mucosal, and by implantation or injection. For implantation or injection, it is often desirable to extend the availability of the drug in order to minimize the frequency of these invasive procedures. A few materials have been commercialized which act as depots for a drug when implanted or injected, releasing the drug over periods ranging from one month to several years. Other material and drug combinations are being developed by third parties. We believe that the properties of these materials for such applications can be substantially improved upon, making available the use of depot systems for a wider range of drugs and applications.

Our soft tissue augmentation products, our surgical adhesive and sealant formulations, and our wound healing matrices all provide platforms for drug delivery applications, serving as controlled release drug depots. The protein polymer materials we have developed exhibit exceptional biocompatibility, provide for control over rates of resorption, and are fabricated using aqueous solvent systems at ambient temperatures — attributes that can be critical in maintaining the activity of the drug, particularly protein-based drugs emerging from the biotechnology industry. This program is in the preclinical research stage.

Because of the highly technical focus of our business, we must conduct extensive research and development prior to any commercial production of our biomedical products or the biomaterials from which they are created. During this development stage, our ability to generate revenues is limited. Because of this limitation, we do not have sufficient resources to devote to extensive testing or marketing of our products. Our primary method to expand our product development, testing and marketing capabilities is to seek to form collaborative arrangements with selected corporate partners with specific resources that we believe complement our business strategies and goals.

Low back pain is the leading cause for healthcare expenditures in the United States, resulting in more than $50 billion in direct and indirect medical expense, and products used to treat it are the fastest growing major segment of the orthopedic industry, with a market of $2.1 billion in revenues and a growth rate of more than 25% annually, according to a February 2000 Viscogliosi Bros., LLC., Spine Industry Analysis Series report. The leading surgical treatments for spine include spinal fusions, discectomies, and laminectomies, but the market for disc replacement and repair is expected to grow more rapidly than other treatments as new products are approved over the next five years.

We are a technology partner with Spine Wave, Inc. We own 2.4 million shares of Spine Wave, Inc. common stock. We used our patented tissue adhesive technology to create Spine Wave’s NuCoreÔ intervertebral disc repair material. We manufactured the NuCore™ material for Spine Wave’s clinical trials.

The spine supports about one-half of the body’s weight and is a highly flexible structure. The spinal disc is like a jelly-filled tire between the bony vertebrae, a key component providing for flexibility and acting as a shock absorber. It has no blood supply and thus is not able to repair itself. Exposure to heavy loads or extreme twisting motions can cause tears in the outer portion of the disc, allowing the jelly-like material (the nucleus) to extrude. Additionally, with age the disc degenerates. The injury to or degeneration of the disc results in fundamental changes in its mechanical properties and also impacts surrounding tissues in a variety of ways, which can result in persistent pain.

Currently, there are no satisfactory treatments available for chronic low back pain due to damaged or deteriorated discs. In extreme cases, a spinal fusion may be performed to limit the mobility of the joint. However, this procedure requires invasive surgery, restricts mobility, and leads to further degeneration of the spine.

A number of products are reported to be in development, ranging from complete replacement with an artificial disc to implantation of “pillows” within the disc space. We and Spine Wave believe an injectable product that can be used in an outpatient procedure, avoiding surgery required for implants and thus minimizing additional damage to the disc and/or surrounding structures will be a preferred approach. Collaborative feasibility studies have demonstrated that the injectable disc nucleus product has physical properties mimicking those of the natural nucleus; is able to withstand the large, cyclical forces seen by the human spine; and resists expulsion under high loads due to its adherence to the disc wall.

Spine Wave’s NuCore™ Injectable Nucleus device, based on our patented tissue adhesive technology, is an injectable protein polymer formulation for repair of spinal discs damaged as a result of injury or aging. Injected in a liquid form, the NuCore™ material rapidly cures to a gel that has physical properties which mimic those of the natural nucleus. Spine Wave has enrolled patients in Degenerative Disc Disease and microdiscectomy studies of the NuCore™ Injectable Nucleus device in four countries: Switzerland, Australia, Germany and the United States.

In December 2005, we entered into agreements with Surgica Corporation, including a license agreement for the exclusive rights to Surgica’s technology and products. Pursuant to these agreement we have provided Surgica with approximately $771,000 in financing to support its operations. Additionally, we acquired an option to purchase all of Surgica’s assets, and entered into a supply and services agreement for Surgica to provide us with, among other services, product for commercial distribution. The option has terminated.

On or about March 13, 2007, we received a letter from Surgica’s counsel alleging that we had breached the license agreement and the supply and services agreement and, based thereon, Surgica was terminating these agreements and, accordingly, our rights to Surgica’s technology and products. In connection therewith Surgica’s counsel demanded that we reassign the 501(k) Clearances, as defined in the license agreement, back to Surgica. We do not believe that we have breached these agreements. Accordingly, we do not believe that we are obligated to reassign the 501(k) Clearances back to Surgica and have so notified Surgica.

In December 2000, we signed a broad-based, worldwide exclusive license agreement with Genencor International, Inc. enabling Genencor, potentially, to develop a variety of new products for industrial markets. In October 2002, the license agreement was amended to provide Genencor with an additional one-year option to initiate development in the field of non-medical personal care products.

In March 2005, the license was amended to fully incorporate the field of personal care products into the license. As a result of the agreements, Genencor may use our patented protein polymer design and production technology, in combination with Genencor's extensive gene expression, protein design, and large-scale manufacturing technology, to design and develop new products with improved performance properties for defined industrial fields and the field of non-medical personal care products.

In return for the licensed rights, Genencor paid the Company an up-front license fee of $750,000, and will pay royalties on the sale of any products commercialized by Genencor under the agreement. The licensed technology was transferred to Genencor upon execution of the license agreement without any further product development obligation on our part. Future royalties on the net sales of products incorporating the technology under license and developed by Genencor will be calculated based on a royalty rate to be determined at a later date. In addition, we are entitled to receive up to $5 million in milestone payments associated with Genencor’s achievement of various industrial product development milestones incorporating the licensed technology. In March 2005 we received a second license milestone

As a result of the collaboration, in 2000 we recognized an aggregate of $750,000 in license fee revenue (less the issuance of warrants to purchase 1 million shares of our common stock valued at $319,000) through December 31, 2006, of which $100,000 was recognize as revenue during 2006. The agreement terminates on the date of expiration of the last remaining patent.

On October 9, 2006, our license agreement with Genencor was amended. The amendment essentially provided for (i) the immediate funding of $100,000 payment under the existing agreement, (ii) modification of the royalty percentage from a variable rate concept to a single rate of 2% of Genecor's net revenues earned from the product sales subject to the license, (iii) a $100,000 payment in January, 2007 and (iv) modification of the milestone payments earned under the agreement. As amended, we are entitled to a milestone payment of $250,000 when a product attains aggregate sales of $5.0 million. We are entitled to a single milestone payment for each product.

We are discussing other potential collaboration agreements with prospective marketing partners. We cannot assure that we will continue such discussions or that we will be able to establish such agreements at all, or do so in a timely manner and on reasonable terms, or that such agreements will lead to successful product development and commercialization. From time to time, we are party to certain materials evaluation agreements regarding biomedical applications of our products, polymers and technology, including applications in areas other than those identified as product candidates above. These agreements provide, or are intended to provide, for the evaluation of product feasibility. We cannot assure that we will continue to be able to establish such agreements at all, or do so in a timely manner and on reasonable terms, or that such agreements will lead to joint product development and commercialization agreements.

The principal anticipated commercial uses of our biomaterials are as components of end-use products for biomedical and other specialty applications. End-use products using or incorporating our biomaterials would compete with other products that rely on the use of alternative materials

The areas of business in which we engage and propose to engage are characterized by intense competition and rapidly evolving technology. Competition in the biomedical and surgical repair markets is particularly significant. Our competitors in the biomedical and surgical repair markets include major pharmaceutical, surgical product, chemical and specialized biopolymer companies, many of which have financial, technical, research and development and marketing resources significantly greater than our own. Academic institutions and other public and private research organizations are also conducting research and seeking patent protection in the same or similar application areas, and may commercialize products on their own or through joint ventures. Most of our competitors depend on synthetic polymer technology rather than protein engineering for developing products. However, we believe that DuPont, BioElastics Research, Ltd. and several university laboratories are currently conducting research into similar protein engineering technology.

We are aggressively pursuing domestic and international patent protection for our technology, making claim to an extensive range of recombinantly prepared structural and functional proteins, the DNA encoding these proteins, methods for preparing this synthetic repetitive DNA, methods for the production and purification of protein polymers, end-use products incorporating such materials and methods for their use. Due to this multi-layered patent strategy, each of our products under development is protected by multiple patents claiming different aspects of the underlying inventions.

We have been granted five U.S. patents that broadly cover the polymer compositions used in our product development efforts and/or the DNA encoding these polymers. These polymers are generally defined by the use of repetitive amino acid sequences found in naturally occurring proteins (e.g., silk, elastin, collagen, keratin). The last of these patents will expire in 2015. Additionally, we have been granted two U.S. patents that specifically cover polymer compositions based on repetitive silk and elastin units and the DNA encoding these polymers. The last of these patents will expire in 2014.

The silk/elastin copolymers used in our soft tissue augmentation products and our tissue adhesive products, including the spinal disc repair product, and the genes used to produce them have amino acid and/or DNA sequences within the claims of all seven of these patents. We also have been granted a U.S. patent that covers the method of using polymers such as these silk/elastin copolymers for soft tissue augmentation. This patent will expire in 2017.

We have been granted eight U.S. patents covering our tissue adhesive and sealant technology. Three of these patents cover the cross-linked polymer compositions and/or methods of using our polymers and a cross-linking agent to adhere or seal tissues, including the filling of defects in tissues. The spinal disc repair product under development, as well as other anticipated products based on our adhesive and sealant technology, fall within the claims of all three of these patents. The last of these patents will expire in 2015. One of the remaining five patents covers the special case of our polymers that are capable of being cross-linked by enzymes, such as those found naturally in the body, which will expire in 2015. The other four remaining patents cover the special case where primers are used to enhance the mechanical strength of protein-based tissue adhesives and sealants. These patents will expire in 2017.

We have been granted two U.S. patents covering the methods used to construct the synthetic DNA encoding proteins having repetitive amino acid sequences. The claims of these patents are not limited by the specific amino acid sequence of the polymers produced using the methods. Therefore, they provide very broad coverage of our core technology. Both of these patents will expire in 2014.

We have been granted and maintain eight U.S. patents that are not currently central to our product development focus. However, they either do or may support the interests of licensees of our technology or may support our future product development efforts. One of the patents specifically covers DNA encoding a polymer useful for in vitro cell culture, which will expire in 2010. Two of the patents specifically cover collagen-like proteins and the DNA encoding them, both of which will expire in 2013. One of the patents specifically covers a purification method for silk-like proteins, developed for large-scale industrial use, which will expire in 2010. Two of the patents specifically cover compositions, formed objects and methods of making such objects, combining traditional thermoplastic resins and proteins providing chemical or biological activity. Both of these patents will expire in 2015. Two of the patents specifically cover our water-insoluble polymers that have been chemically modified to make them water-soluble. The last of these two patents will expire in 2015.

Although we believe our existing issued patent claims provide a competitive advantage, we cannot assure that the scope of our patent protection is or will be adequate to protect our technology or that the validity of any patent issued will be upheld in the future. Additionally, with respect to our pending applications, we cannot assure that any patents will be issued, or that, if issued, they will provide substantial protection or be of commercial benefit to us.

Although we do not currently have any operations outside the U.S., we anticipate that our potential products will be marketed on a worldwide basis, with possible manufacturing operations outside the U.S. Additionally, current or potential products of our licensees are, or are expected to be, marketed on a worldwide basis with current or potential manufacturing operations outside the U.S. Accordingly, we have filed international patent applications corresponding to the major U.S. patents described above in foreign countries. Due to translation costs and patent office fees, international patents are significantly more expensive to obtain and maintain than U.S. patents. Additionally, there are differences in the requirements concerning novelty and the types of claims that can be obtained compared to U.S. patent laws, as well as the nature of the rights conferred by a patent grant. We carefully consider these factors in consultation with our patent counsel, as well as the size of the potential markets represented, in determining the foreign countries in which to file patents.

In almost all cases, we file for patents in Europe and Japan. Currently, we maintain fifteen issued foreign patents, and five pending foreign applications. One of the issued foreign patents is in Europe and the scope of its claims broadly covers protein polymers having functional activity, including those polymers used in our soft tissue augmentation and tissue adhesive products under development. This patent will expire in 2009. Generally, we only maintain foreign patents or applications in Europe and Japan, unless otherwise required due to our license agreements.

Because of the uncertainty concerning patent protection and the unavailability of patent protection for certain processes and techniques, we also rely upon trade secret protection and continuing technological innovation to maintain our competitive position. Although all our employees have signed confidentiality agreements, there can be no assurance that our proprietary technology will not be independently developed by other parties, or that secrecy will not be breached. Additionally, we are aware that substantial research efforts in protein engineering technology are taking place at universities, government laboratories and other corporations and that numerous patent applications have been filed. We cannot predict whether we may have to obtain licenses to use any technology developed by third parties or whether such licenses can be obtained on commercially reasonable terms, if at all.

In the course of our business, we employ various trademarks and trade names in packaging and advertising our products. We have assigned the federal registration of our ProNectin® trademark and our SmartPlastic® trademark for ProNectin F Activated Cultureware to Sanyo Chemical Industries, Ltd. in connection with the sale to Sanyo of our cell culture business in February 2000. We intend to protect and promote all of our trademarks and, where appropriate, will seek federal registration of our trademarks.

Delaware	33-0311631
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


PART I			2
	Item 1.	Business	12
	Item 2.	Properties	12
	Item 3.	Legal Proceedings	12
	Item 4.	Submission of Matters to a Vote of Security Holders	12

PART II			12
	Item 5.	Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities	12
	Item 6.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 7.	Financial Statements	F-1
	Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	21
	Item 8A.	Controls And Procedures	21
	Item 8B.	Other Information	21

PART III			21
	Item 13.	Exhibits	21
	Signatures		26

	•	combine properties of different proteins found in nature;
	•	reproduce and amplify selected activities of natural proteins;
	•	eliminate undesired properties of natural proteins; and
	•	incorporate synthetic properties via chemical modifications