DERMA SCIENCES, INC.
                             STOCK OPTION AGREEMENT

     THIS  STOCK  OPTION  AGREEMENT,  made and dated as of the 23rd day of July,
1997 between Derma Sciences,  Inc., a Pennsylvania  corporation (the "Company"),
and Stephen T. Wills, CPA, MST (the "Optionee").
     WHEREAS,  the Company desires to afford the Optionee,  in consideration for
his services to the Company as its Chief  Financial  Officer,  an opportunity to
purchase  shares  of  Common  Stock of the  Company  ("Shares")  as  hereinafter
provided,
     NOW,  THEREFORE,  in consideration of the mutual covenants  hereinafter set
forth and for other good and valuable  consideration  the legal  sufficiency  of
which is hereby acknowledged,  the parties hereto, intending to be legally bound
hereby, agree as follows:
     1. Grant of Option. The Company hereby grants to the Optionee the right and
option  to  purchase  all or any part of an  aggregate  of  75,000  shares  (the
"Option") which Option is intended as a "nonqualified stock option".  The Option
is in all respects limited and conditioned as hereinafter provided.
     2. Purchase Price. The purchase price per share (the "Option Price") of the
Shares  covered by the Option (the "Option  Shares") shall be the offering price
of the Company's Common Stock in the Company's current private offering, to wit:
$1.00.
     3. Term. The Option shall expire on July 22, 2007 (the "Expiration Date").
     4.  Vesting and  Exercise of Option.  The right of the Optionee to purchase
the Option Shares may be exercised, cumulatively and in whole or in part, at the
times hereinbelow provided:

                 Date Installment                   Number of
               Becomes Exercisable                Option Shares

               August 22, 1997                        4,166
               September 22, 1997                     4,167
               October 22, 1997                       4,167
               November 22, 1997                      4,166
               December 22, 1997                      4,167
               January 22, 1998                       4,167
               February 22, 1998                      4,166
               March 22, 1998                         4,167
               April 22, 1998                         4,167
               May 22, 1998                           4,166
               June 22, 1998                          4,167
               July 22, 1998                          4,167
               August 22, 1998                        4,166
               September 22, 1998                     4,167
               October 22, 1998                       4,167
               November 22, 1998                      4,166
               December 22, 1998                      4,167
               January 22, 1999                       4,167

     5. Acceleration of Vesting.  Vesting of the Option shall accelerate and the
Option  shall  become  100%  exercisable  upon the  occurrence  of either of the
following: (1) the sale by the Company of all or substantially all of its assets
to any person (as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934), the  consolidation of the Company with any person, or the
merger of the Company with any person as a result of which merger the Company is
not the surviving entity, or if the surviving entity,  the Company is owned by a
parent  company;  or (2) the sale or  transfer  by one or more of the  Company's
shareholders in one or more transactions,  related or unrelated,  to one or more
persons under circumstances  whereby any person and its "affiliates" (as defined
herein) shall own, as a result of such sale or transfer,  at least Fifty percent
(50%) of the outstanding shares of the Company.
<PAGE>

     6. Method of Exercising  Option. (a) Subject to the terms and conditions of
this Option  Agreement,  the Option may be exercised by giving written notice to
the Company at its principal office specifying the number of Option Shares to be
purchased and accompanied by payment in full of the aggregate purchase price for
the Shares.  Only full Shares shall be delivered and any fractional  share which
might  otherwise be  deliverable  upon exercise of an Option  granted  hereunder
shall be forfeited. Attached as Exhibit 1 is a form of written notice acceptable
to the Company.
          (b)  The  purchase  price  shall  be  payable:  (i)  in  cash  or  its
     equivalent,  or (ii) in whole or in part  through  the  transfer  of Common
     Stock previously acquired by the Optionee.
          (c) Upon receipt of such notice and payment,  the Company, as promptly
     as  possible,  shall  deliver or cause to be  delivered  a  certificate  or
     certificates representing the Shares with respect to which the Option is so
     exercised.  The  certificate  or  certificates  for  such  Shares  shall be
     registered in the name of the person or persons  exercising the Option (or,
     if the Optionee shall so request in the notice  exercising  the Option,  in
     the  name  of  the  Optionee  and  his  spouse,   jointly,  with  right  of
     survivorship)  and  shall be  delivered  as  provided  above to or upon the
     written order of the person or persons  exercising the Option. In the event
     the Option is exercised  by any person or persons  after the death or legal
     disability of the Optionee, such notice shall be accompanied by appropriate
     proof of the right of such  person or persons to exercise  the Option.  All
     shares  that are  purchased  upon the  exercise  of the Option as  provided
     herein shall be fully paid and nonassessable.
     7.  Non-transferability of Option. Save as hereinafter provided, the Option
is not  assignable or  transferable,  in whole or in part, by the Optionee other
than by will or by the laws of descent and distribution.  During the lifetime of
the Optionee,  the Option shall be  exercisable  only by the Optionee or, in the
event of his legal disability, by his legal representative.  Provided,  however,
Optionee may assign, without limitation,  the unexercised portion of this Option
to the firm of Golomb, Wills & Company, Princeton, New Jersey.
     8.  Withholding  of Taxes.  The obligation of the Company to deliver Shares
upon the  exercise  of any Option  shall be subject to any  applicable  federal,
state and local tax withholding requirements.
     9. Governing Law. This Agreement shall, to the maximum extent possible,  be
construed  in a manner  consistent  with the Internal  Revenue  Code  provisions
concerning  nonqualified stock options and its interpretation shall otherwise be
governed by Pennsylvania law.
     IN WITNESS  WHEREOF,  the parties  have set their hands and seals as of the
day and year first hereinabove written.


                              DERMA SCIENCES, INC.



                              By: /s/ Edward J. Quilty
                                  ----------------------
                                  Edward J. Quilty, Chairman
 


                              OPTIONEE



                              By: /s/ Stephen T. Wills, CPA, MST
                                  -------------------------------          
                                  Stephen T. Wills, CPA, MST



<PAGE>
                                                             
                                    EXHIBIT 1
                              DERMA SCIENCES, INC.
                       NOTICE OF EXERCISE OF STOCK OPTION

     I  hereby   exercise   nonqualified   stock   options   granted  to  me  on
_______________ by Derma Sciences,  Inc. with respect to the following number of
shares  of Derma  Sciences,  Inc.  Common  Stock,  $.01  par  value  per  share,
("Shares") covered by said option:
         Number of Shares to be purchased   ________________
         Option price per Share                      ________________
         Total option price                          ________________
         Enclosed is my check in the amount of $_______ (and/or ______ Shares)1.
Please have the certificate or certificates  representing  the purchased  Shares
registered in the following name or names2  ________________________________ and
sent to _________________________________________________.

DATED: ______________, ____.

                                                     OPTIONEE



                                                     _________________________


-------- 
1The option price may be paid in whole or in part by delivery of Shares, subject
to the terms of the Optionee's Stock Option Agreement.

2Certificates  may be  registered  in the name of the  Optionee  alone or in the
joint names of the Optionee and his/her spouse.