Exhibit 10.08

                              DERMA SCIENCES, INC.
                             STOCK OPTION AGREEMENT

          THIS STOCK OPTION AGREEMENT, hereby made and dated as of the 24th day
of August, 2001 (the "Grant Date") between Derma Sciences, Inc., a Pennsylvania
corporation (the "Company"), and John E. Yetter (the "Optionee").

         WHEREAS, the Optionee is an employee of the Company, and

         WHEREAS, the Company desires to recognize and compensate its employees
for their services to the Company,

         NOW, THEREFORE, the parties hereto, intending to be legally bound,
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 100,000 shares of
common stock of the Company (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 closing bid
price of the Company's common stock on the date hereof, to wit: $0.40.

         3. Term. The Option shall expire on August 24, 2011 (the "Expiration
Date").

         4. Exercise of Option. (a) The Option shall become exercisable in five
(5) equal installments, and the Optionee shall have the right to purchase from
the Company, on and after the following dates, the following number of Option
Shares:

          Date Installment                      Number of
        Becomes Exercisable                    Option Shares

          August 24, 2001                         20,000
          August 24, 2002                         20,000
          August 24, 2003                         20,000
          August 24, 2004                         20,000
          August 24, 2005                         20,000

         (b) Vesting of the Option Shares shall cease and determine upon the
termination of the Optionee's tenure as an employee of the Company. Vesting of
the Option Shares shall accelerate to 100% immediately upon a change in control
of the Company. For purposes hereof, a "change in control" shall mean a change
in ownership of stock possessing greater than fifty percent (50%) of the total
combined voting power of all classes of stock entitled to vote of the Company.
Anything hereincontained to the contrary notwithstanding, the right of the
Optionee to exercise the Option shall extend to the earlier of August 24, 2011
or two years following the termination of the Optionee's employment with the
Company.

         5. 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 Option Shares. 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) if shares of the same class as the Option Shares are traded on a
national securities exchange, through the transfer to the Company of shares
previously acquired by the Optionee; provided, however, any such shares shall be
valued at the average per share closing price thereof for the five trading days
preceding the date of transfer.

         (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 Option Shares with respect to which the Option is
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 Option Shares that are purchased upon the
exercise of the Option as provided herein shall be fully paid and nonassessable.


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         6. Non-Transferability of Option. 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.

         7. Withholding of Taxes. The obligation of the Company to deliver
Option Shares upon the exercise of any Option shall be subject to any applicable
federal, state and local tax withholding requirements.

         8. 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 Company has caused this Stock Option Agreement
to be executed by a duly authorized officer, and the Optionee has hereunto set
his hand and seal, all as of the day and year first hereinabove written.


                                    DERMA SCIENCES, INC.



                                    By:_________________________________________
                                         Edward J. Quilty
                                         President and Chief Executive Officer


                                    OPTIONEE



                                    ____________________________________________
                                    John E. Yetter



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                              DERMA SCIENCES, INC.
                       NOTICE OF EXERCISE OF STOCK OPTION

         I hereby exercise nonqualified stock options granted to me on August
24, 2001 by Derma Sciences, Inc. with respect to the following number of shares
of Derma Sciences, Inc. Common Stock 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 names 2 __________________
__________________________ and sent to __________________________.


DATED: ______________, ____.

                                    OPTIONEE



                                    _________________________
                                    John E. Yetter




____________________________
1 The 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.

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


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