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                                                                   EXHIBIT 10.27

                             EMPLOYMENT AGREEMENT


          THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
                                           ---------                        
November 1, 1996 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and JOSEPH CAPPELLO (the "Employee").
                  -------                              --------   


                                 R E C I T A L
                                 - - - - - - -

          The Company desires to continue to employ the Employee, and the
Employee desires to be so employed by the Company, on the terms and subject to
the conditions set forth in this Agreement.  This Agreement supersedes that
certain employment agreement between the Company and the Employee dated November
1, 1994 (the "Prior Agreement").
              ---------------   


                                   AGREEMENT
                                   ---------

          NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth in this Agreement, the Company and the Employee hereby agree
as follows:

          1.   Employment.
               ---------- 

               (a) Subject to the terms and conditions contained herein, the
Company hereby agrees to employ the Employee, and the Employee accepts such
employment, from the date hereof until the earlier of (i) November 1, 1999 or
(ii) the date such employment is terminated pursuant to Section 4 of this
Agreement. During the Employee's employment under this Agreement, the Employee
shall perform such duties for the Company as may from time to time be assigned
to the Employee by Board of Directors of the Company (the "Board") or the
President of the Company (the "Designated Officer"). The Employee shall have the
titles of Director-Polymer Research and Chief Technical Officer, or such other
title or titles, if any, as from time to time may be assigned to the Employee by
the Board.

               (b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests.  So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
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                    (i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;

                    (ii) render or perform services of a business, professional,
or commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or

                    (iii) invest in or become a shareholder of another
corporation or other entity; provided, that the Employee's investment solely as
                             --------
a shareholder in another corporation shall not be prohibited hereby so long as
such investment is not in excess of one percent (1%) of any class of shares that
are traded on a national securities exchange.

                (c) Prior to or concurrently with the execution of this
Agreement, the Employee has executed an Employee Proprietary Information, Trade
Secret and Confidentiality Agreement (the "Confidentiality Agreement").
                                           -------------------------   

          2.   Location of Employment.  The Employee's principal place of
               ----------------------                                    
employment shall be at the executive offices of the Company located at 10655
Sorrento Valley Road, San Diego, California 92121 or, as may be requested by the
Board, at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
                                         --------                              
Board or the Designated Officer, the Employee may from time to time be required
to travel to various domestic and foreign locations.

          3.   Compensation.
               ------------ 

               (a) In exchange for full performance of the Employee's
obligations and duties under this Agreement, the Company shall pay the Employee
a base salary (the "Base Salary") at a monthly rate equal to $9,000, payable in
                    -----------
accordance with the Company's standard payroll practices, subject to adjustment
in accordance with subsection (b) hereof. In any month in which the Employee
shall be employed for less than the entire number of days in such month, the
compensation payable under this Section 3(a) shall be prorated on the basis of
the number of days during which the Employee was actually employed divided by
the number of days in such month.

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<PAGE>
 
               (b) Notwithstanding anything to the contrary in subsection (a)
hereof, the Base Salary shall be increased by an amount equal to $1,000 per
month (the "Additional Monthly Base Salary") to the extent, and subject to the
conditions, set forth in this subsection (b). The Additional Monthly Base Salary
                                              ----------------------------------
component of the Base Salary shall accrue without interest from the date of this
Agreement, but shall not be payable, if ever, until the earlier of (A) the
acceptance by Ethicon, Inc. ("Ethicon") of the tissue adhesive and/or sealant
                              -------
product of the Company has been accomplished pursuant to that certain License
and Development Agreement (the "Ethicon Agreement") dated September 14, 1995
                                -----------------
between the Company and Ethicon, as the same may be amended or extended from
time to time, or (B) the determination by the Compensation Committee of the
Board that sufficient progress has been made by the Company to warrant the
increase in Base Salary by the amount of the Additional Base Salary (either of
the immediately foregoing conditions, the "Increase Conditions"). Upon the
                                           -------------------
accomplishment of either of the Increase Conditions, all accrued Additional
Monthly Base Salary shall be payable on the next standard payroll distribution
date and thereafter the Additional Monthly Base Salary shall be payable in
accordance with the Company's standard payroll practices, and the Base Salary
shall thereafter be $10,000 per month, or $120,000 per year. In the event either
of the Increase Conditions are not accomplished prior to the expiration of this
Agreement or the termination of Employee's employment hereunder, no Additional
Monthly Base Salary shall be paid or payable under this Agreement.

               (c) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.

               (d) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.

               (e) The Employee shall be entitled to 20 business days vacation
for each full year of employment

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<PAGE>
 
under this Agreement, which vacation time will accrue in accordance with the
vacation policy of the Company.

               (f) The Employee shall be entitled to participate in all benefit
plans (including deferred compensation plans and any medical, dental or life
insurance plans) which shall be available from time to time to the domestic
management employees of the Company generally, except to the extent such
participation in any plan would, in the opinion of the Designated Officer, alter
the intended tax treatment of such plan; provided, however, that the Employee
                                         --------  -------                   
shall have no right under this Agreement to participate in any stock option,
stock purchase or other plan relating to shares of capital stock of the Company
or its affiliates. The Employee acknowledges and agrees that the Board may in
its discretion terminate at any time or modify from time to time any such
benefit plans.

               (g) Other than as expressly set forth in this Section 3 or
Sections 4(f) and 4(g) below, the Employee shall not receive any other
compensation or benefits except to the extent provided by the Board.

          4.   Termination.
               ----------- 

               (a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.

               (b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.

               (c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Designated Officer
or the Board, any duties assigned to the Employee by the Designated Officer or
the Board, (ii) committed a breach of the terms of this Agreement or any other
legal obligation to the Company, (iii) failed to

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perform any of the Employee's obligations under the Confidentiality Agreement,
(iv) demonstrated negligence or willful misconduct in the execution of the
Employee's assigned duties, (v) been convicted of or pleaded nolo contendere to
                                                             ---- ----------  
a felony or other serious crime, (vi) repeatedly and intemperately used alcohol
or drugs, (vii) engaged in business practices which, in the opinion of the
Board, are unethical or reflect adversely on the Company, (viii) misappropriated
assets of the Company or (ix) been repeatedly absent from work during normal
business hours for reasons other than disability.

               (d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.

               (e) In addition to the circumstances described in subsections
(a), (b), (c) and (d) above, the Company may terminate the Employee's employment
for any reason or no reason and with or without cause or prior notice. The
Employee understands that, subject to subsections (f)(iii) and (g) below, he is
an at-will employee and may be terminated by the Company without cause or prior
notice pursuant to this subsection (e) notwithstanding any other provision
contained in this Agreement. This at-will relationship will remain in effect
during the term of this Agreement and so long thereafter provided that the
Employee remains employed by the Company, unless such at-will employment
relationship is modified by a specific, express written agreement signed by the
Company.

               (f) If the Employee's employment is terminated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:

                   (i) Base Salary and vacation pay accrued, and reasonable
business expenses incurred, under Section 3 of this Agreement through the date
of such termination;

                   (ii) such benefits, if any, as may be required to be provided
by the Company under the Comprehensive Omnibus Budget Reconciliation Act
(COBRA); and

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                   (iii)      if the Employee's employment is terminated
pursuant to subsection (e) above, the Company shall continue to pay to the
Employee the Base Salary then in effect at intervals in accordance with the
Company's standard payroll practice until the earlier of (A) six months
following such termination or (B) the termination date set forth in Section
1(a)(i) of this Agreement.

               (g) Employee may terminate his employment hereunder for "Good
                                                                        ----
Reason" (as hereinafter defined).
------                           

                   (i) For purposes of this Agreement, "Good Reason" shall mean
a termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
                                            -----------------                 
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.

                   (ii) For purposes of this Agreement, the term "Change in
Control" shall mean the occurrence of any of the following events with respect
to the Company:

                        (A) All or substantially all of the assets of the 
                         -    
     Company are sold or transferred to another corporation or entity; or

                        (B) The Company is sold, transferred, merged,
                         -
     consolidated, ventured or reorganized into or with another corporation or
     entity, with the result that upon conclusion of the transaction less than a
     majority of the outstanding securities entitled to vote generally in the
     election of directors or other capital interests of the acquiring
     corporation or entity are owned, directly or indirectly, by the
     shareholders of the Company immediately prior to the sale, transfer,
     merger, consolidation, venture or reorganization; or

                        (C) There is a report filed on Schedule 13D or Schedule
                         -
     14D-1 (or any successor schedule, form or report), each as promulgated
     pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
                                                                       --------
     Act"), disclosing that any person (as the term "person" is used in Section
     ---
     13(d)(3) or Section

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     14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
     "beneficial owner" is defined under Rule 13d-3 or any successor rule or
     regulation promulgated under the Exchange Act) of securities representing
     more than 50% of the combined voting power of the then-outstanding voting
     securities of the Company; or

                        (D) The Company shall file a report or proxy statement
                         -
     with the Securities and Exchange Commission pursuant to the Exchange Act
     disclosing in response to Item 1 of Form 8-K thereunder or Item 14 of
     Schedule 14A thereunder (or any successor schedule, form or report or item
     therein) that a change in control of the Company has or may have occurred
     or will or may occur in the future pursuant to any then-existing contract
     or transaction; or

                        (E) The individuals who, at the beginning of any period
                         -
     of two consecutive calendar years, constituted members of the Board cease
     for any reason to constitute at least a majority thereof unless the
     nomination for election by the Company's stockholders of each new director
     of the Company was approved by a vote of at least two-thirds of the
     directors of the Company still in office who were Directors of the Company
     at the beginning of any such period.

          (iii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (i) if Employee shall have specifically
consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee, within 30 days after
receiving written notice from the Company specifying in reasonable detail the
occurrence of one of such events, shall have delivered a written notice to the
Company stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination and such event, if capable of
being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.

          (iv) If Employee shall terminate his employment for Good Reason, the
Company shall pay Employee (or, in the event of his death, his devisee, legatee
or, if there is none, his estate) a lump-sum amount equal to the highest level
of Employee's annual Base Salary in effect on the date of the Change in Control,
multiplied by a factor of 

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2. Employee will also be entitled to any vested benefits under any employee
benefit plans.

          5.   Employee's Representations.
               -------------------------- 

               (a) The Employee represents that he has full authority to enter
into this Agreement and that he is free to enter into this Agreement and not
under any contractual restraint which would prohibit the Employee from
satisfactorily performing his duties to the Company under this Agreement.

               (b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.

               (c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.

          6.   Arbitration.  Any controversy or claim arising out of or relating
               -----------                                                      
to this Agreement or any breach hereof or the Employee's employment by the
Company or termination thereof, shall be settled by arbitration by one
arbitrator in accordance with the rules of the American Arbitration Association,
and judgment upon such award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.  The arbitration shall be held in the City of
San Diego or such other place as may be agreed upon at the time by the parties
to the arbitration.

          7.   Equitable Relief.  The Employee acknowledges that the Company is
               ----------------                                                
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Employee are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Employee hereby agrees that in addition to

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<PAGE>
 
the remedies available to the Company by law or under this Agreement, the
Company shall be entitled to obtain such equitable relief as may be permitted by
law in a court of competent jurisdiction including, without limitation,
injunctive relief from any violation or continuing violation by the Employee of
any term or provision of this Agreement.

          8.   Governing Law.  This Agreement shall be governed by and construed
               -------------                                                    
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts) of the State of California.

          9.   Entire Agreement.  This Agreement constitutes the whole agreement
               ----------------                                                 
of the parties hereto in reference to any employment of the Employee by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to such employment; all prior
agreements, promises, representations and understandings relative thereto
(including, without limitation, the Prior Agreement) being herein merged.

          10.  Assignability.
               ------------- 

               (a) In the event the Company shall merge or consolidate with any
other corporation, partnership or business entity, or all or substantially all
of the Company's business or assets shall be transferred in any manner to any
other corporation, partnership or business entity, then such successor to the
Company shall thereupon succeed to, and be subject to, all rights, interests,
duties and obligations of, and shall thereafter be deemed for all purposes
hereof to be, the "Company" under this Agreement. This Agreement shall inure to
the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die, any amounts payable to him
hereunder shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee, or other designee or, if there be no such designee,
to his estate.

               (b) This Agreement is personal in nature and the Employee shall
not, except as set forth in subsection (a) hereof, without the written consent
of the Company, assign or transfer this Agreement or any rights or obligations
hereunder.

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<PAGE>
 
               (c) Except as set forth in subsection (a) above, nothing
expressed or implied in this Agreement is intended or shall be construed to
confer upon or give to any person, other than the parties to this Agreement, any
right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition of this Agreement.

          11.  Amendments; Waivers.  This Agreement may be amended, modified,
               -------------------                                           
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company.  The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same.  No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.

          12.  Notice.  All notices, requests or consents required or permitted
               ------                                                          
under this Agreement shall be made in writing and shall be given to the other
parties by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12.  Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.

          13.  Severability.  Any provision of this Agreement that is
               ------------                                           
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

                                       10
<PAGE>
 
          14.  Survival.  The representations and agreements of the Employee set
               --------                                                         
forth in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).

          15.  Attorney's Fees.  If any party to this Agreement seeks to enforce
               ---------------                                                  
his or its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.


                            [Signature page follows]

                                       11
<PAGE>
 
       IN WITNESS WHEREOF, the parties to this Agreement have executed this
            Employment Agreement as of the date first above written.


                         PROTEIN POLYMER TECHNOLOGIES, INC.



                         By /s/ J. Thomas Parmeter
                           ------------------------------
                            Its  President
                               --------------------------

                         Address for Notices:

                         10655 Sorrento Valley Road
                         First Floor
                         San Diego, California  92121
                         Attention:  __________________
                         Telecopy:  (619) 558-6477


                         /s/  Joseph Cappello
                         -------------------------------             
                         Joseph Cappello
                         
                         Address for Notices:

                           2958 Renault St.
                         -------------------------------             
                           San Diego, CA 92122
                         -------------------------------             

                         -------------------------------             

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