Document:

<PAGE>

                                                                   Exhibit 10.40

                                ESCROW AGREEMENT

     THIS ESCROW AGREEMENT is made as of April 12, 2001 (the "Effective Date"),
by and among SPINE WAVE, INC., a Delaware corporation ("Company"), and PROTEIN
POLYMER TECHNOLOGIES, INC., a Delaware corporation ("PPTI"), and the party
identified on Exhibit A attached hereto ("Escrow Agent").

     WHEREAS, in connection with the License Agreement between Company and PPTI
("License Agreement") and Supply and Services Agreement between PPTI and Company
("Supply Agreement"), PPTI has agreed to enter into this Escrow Agreement
pursuant to which PPTI shall deposit into escrow, when required (i) the "Gene
Construction Technology Escrow Materials" described on Schedule 1 attached
hereto; (ii) the "Biomechanical Standard Formulation(s) Escrow Materials"
described on Schedule 2 attached hereto; (iii) the "Commercial Production Escrow
Materials" described on Schedule 3 attached hereto; and (iv) the "Protein
Polymer Design and Supply Escrow Materials" described on Schedule 4 attached
hereto (Gene Construction Technology Escrow Materials, Biomechanical Standard
Formulation(s) Escrow Materials, Commercial Production Escrow Materials, and
Protein Polymer Design and Supply Escrow Materials are collectively referred to
as the "Escrow Materials");

     NOW, THEREFORE, the parties hereto agree as follows:

     1.   Appointment of Escrow Agent. Within thirty (30) days after the
          ---------------------------
Effective Date, Company shall select and appoint an Escrow Agent, which
appointment shall be subject to the consent of PPTI, such consent not to be
unreasonably withheld, conditioned or delayed. The Escrow Agent must certify to
the parties that it has and will have at all times during the term of the escrow
liquid nitrogen storage capabilities and that it will use such capabilities to
hold the cell bank samples which are part of the Escrow Materials. Upon such
appointment, the Escrow Agent shall execute a copy of Exhibit A (duly filled in
with the information specified thereon), whereupon the Escrow Agent shall become
a party to this Agreement.

     2.   Deposit by PPTI.
          ---------------

          (a)  In accordance with the requirements set forth in the applicable
Schedules attached hereto, and provided that the Escrow Agent has been
appointed, executed a copy of Exhibit A and has become a party to this
Agreement, PPTI will (i) deposit in escrow with the Escrow Agent the applicable
Escrow Materials to be held subject to the terms and conditions of this Escrow
Agreement and (ii) provide to Company a schedule of Escrow Materials so
deposited. The schedule shall itself constitute Know-How (as defined in the
License Agreement) and shall be kept confidential. PPTI shall, upon placing each
cell bank sample into escrow, so notify Company of such deposit in writing. PPTI
agrees to replace the deposited cell bank samples with a newly-generated set of
cell bank samples if PPTI, based on quality control testing of Product
manufactured from cognate cells shall determine that the cells in the cell bank
sample are not viable, in which case Company shall give its written instructions
pursuant to Section 4 hereof. PPTI shall, upon each replacement of a cell bank
sample, so notify Company of such deposit in writing.

                                       1

<PAGE>

          (b)  PPTI shall promptly and regularly update the Escrow Materials **
with any information and other materials developed, discovered or determined
subsequent to the Initial Deposit and within the scope of the Escrow Materials
as described on the Schedules, and deposit a written copy of such updated
material with the Escrow Agent to become, upon deposit, part of the Escrow
Materials and to be held pursuant to the terms of this Agreement. Company, at
its own expense, may designate a neutral third party who shall audit the Escrow
Materials on deposit with the Escrow Agent for purposes of determining whether
PPTI has fulfilled its deposit obligations and whether such Escrow Materials
provide sufficient Know-How to Company to construct genes, manufacture protein
polymers and perform other similar objectives in the manner contemplated under
this Agreement, the Supply Agreement or any agreement contemplated by the Supply
Agreement. PPTI shall promptly correct any deficiency disclosed by the audit
(and where appropriate, the term "Escrow Materials" shall include any such
updated materials from time-to-time). PPTI shall, upon each updating of the
Escrow Materials, so notify Company of such fact in writing, and give it the
same verification opportunity as is provided above. Company may, at its sole
cost and expense, obtain such insurance as it deems reasonable and necessary
regarding the Escrow Materials.

     3.   Representation. PPTI represents and warrants to Company that the
          --------------
Escrow Materials, when deposited, are and will be accurate and complete in all
material respects, that in its reasonable opinion the Escrow Materials, when
deposited, will be sufficiently complete, clear and detailed so that they can be
readily followed and carried out by a trained scientist in order to allow
Company to exercise its rights under the License Agreement. PPTI further
represents and warrants to Company that any deposited cell bank samples
(including any replacement cell bank samples deposited pursuant to Section 2)
will be free of material defects and will be viable at the time of deposit.

     4.   Custody; Access. Escrow Agent agrees to accept deposit of Escrow
          ---------------
Materials and to act as its custodian until the escrow is terminated pursuant to
the terms of this Escrow Agreement. Except as otherwise provided in this Escrow
Agreement, Escrow Agent shall not permit (i) any party access to the Escrow
Materials and (ii) any copies to be made of the Escrow Materials deposited
hereunder. Escrow Agent shall not open the sealed receptacles containing cell
bank samples forming a part of the Escrow Materials, except upon receipt of
mutual written instructions from PPTI and Company.

     5.   Release of Escrow Materials.
          ---------------------------

          (a)  To Company. Escrow Agent shall release and deliver the Escrow
               ----------
Materials to Company upon the occurrence of any of the following events;
provided, that if PPTI disputes the release event under this Section, then
Escrow Agent shall not release the Escrow Materials until the dispute is
resolved pursuant to Section 9(c) hereof:

               (i)   Upon the written instructions of PPTI;

               (ii)  Upon delivery to the Escrow Agent of (A) a copy of an
order, judgment or decree adjudicating PPTI bankrupt or insolvent; (B) written
notice that PPTI has commenced any case, proceeding or other action relating to
it in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up, arrangement, composition or readjustment

** Material is confidential and has been omitted and filed separately with the
   Securities and Exchange Commission.

                                       2

<PAGE>

of its debts, or for any other relief, under any bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement, composition, readjustment
of debt or other similar act or law of any jurisdiction, domestic or foreign,
now or hereafter existing; (C) PPTI has applied for a receiver, custodian or
trustee of it or for all or a substantial part of its property, made an
assignment for the benefit of its creditors; or (D) written notice that a case,
proceeding or other action has been commenced against PPTI in bankruptcy, or
seeking reorganization, liquidation, dissolution, winding-up, arrangement,
composition or readjustment of its debts, or any other relief, under any
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or other similar act or law of any
jurisdiction, domestic or foreign, now or hereafter existing; or if a receiver,
custodian or trustee of PPTI or for all or substantially all of its properties
shall be appointed; or if a warrant of attachment, execution or distraint, or
similar process, shall be issued against any substantial part of the property of
PPTI; and if in each such case in this clause (D) such condition shall continue
for a period of ** undismissed, undischarged or unbonded;

               (iii)  With respect to relevant Commercial Production Escrow
Materials only, upon delivery to Escrow Agent of written notice that PPTI has
failed to exercise its manufacturing option or PPTI and Company fail to reach
agreement on the terms of a manufacturing supply arrangement pursuant to Section
2.2 of the License Agreement;

               (iv)   With respect to Biomechanical Standard Formulation(s),
Commercial Production and Protein Polymer Design and Supply Services Escrow
Materials only, ** after Company delivers to both Escrow Agent and PPTI a letter
or certificate signed by the President of Company indicating that it is entitled
to such Escrow Materials as a result of a material breach by PPTI of the Supply
Agreement (which breach was not cured in accordance with the applicable
provisions thereof);

               (v)    With respect to relevant Commercial Production Escrow
Materials only, ** after Company delivers to both Escrow Agent and PPTI a letter
or certificate signed by the President of Company indicating that it is entitled
to such Escrow Materials as a result of a material breach by PPTI of a
manufacturing supply agreement entered into pursuant to Section 2.2 of the
License Agreement; provided that PPTI shall be deemed to be in material breach
of any such agreement in the event that **;

               (vi)   ** after Company delivers to both Escrow Agent and PPTI a
letter or certificate signed by the President of Company indicating that it is
entitled to the Escrow Materials as a result of a material breach by PPTI of the
License Agreement (which breach was not cured in accordance with the applicable
provisions thereof);

               (vii)  With respect to Gene Construction Technology Escrow
Materials only, ** after Company delivers to both escrow Agent and PPTI a letter
or certificate signed by the President of Company indicating the completion of
**; or

               (viii) With respect to Protein Polymer Design and Supply Escrow
Materials, and on a relevant culture-by-culture and protein specific basis, **
after Company delivers to both Escrow Agent and PPTI a letter or certificate
signed by the President of Company of (i) initiation of internal Design Services
efforts (as provided in the Supply

** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       3

<PAGE>

Agreement) specifying materials that are reasonably required for such efforts or
(ii) initiation of Design Services by a third party following PPTI's election
not to provide Design Services under its Design Services rights under the Supply
Agreement.

          (b)  To PPTI. Escrow Agent shall release and deliver all of the Escrow
               -------
Materials to PPTI within ten (10) business days after PPTI delivers to Escrow
Agent and the Company a letter or certificate signed by the President of PPTI
indicating that it is entitled to the Escrow Materials as a result of
termination or expiration of the License Agreement; provided, that if Company
disputes the release event under this Section, then Escrow Agent shall not
release the Escrow Materials until the dispute is resolved pursuant to Section
9(c) hereof.

          (c)  Company agrees that Company shall not, by virtue of the release
of Escrow Materials to Company, have any license or ownership rights in and to
the Escrow Materials other than the rights expressly agreed upon by the parties
in the License Agreement or other agreement between the parties.

     6.   Termination of Escrow. The escrow shall terminate upon the earliest to
          ---------------------
occur of the following events:

          (a)  mutual written agreement of the parties; or

          (b)  delivery of all the Escrow Materials to Company or PPTI, as the
case may be, in accordance with the terms of Section 5 hereof.
                                             ---------.

     7.   Escrow Agent Fees. In consideration for performing its function as
          -----------------
escrow agent, Escrow Agent shall be paid solely by Company the charge for any
duties required in connection with this Escrow Agreement.

     8.   Escrow Agent.
          ------------

          (a)  The obligations of the Escrow Agent are those specifically
provided in this Escrow Agreement, and the Escrow Agent shall have no liability
hereunder, or duty to inquire into the terms and provisions of, any other
agreement including, without limitation, the License Agreement. The duties of
the Escrow Agent are purely ministerial in nature, and it shall not incur any
liability whatsoever, except for willful misconduct, gross negligence or breach
of Section 8(d).
   ------------

          (b)  The Escrow Agent shall not have any responsibility for the
genuineness or validity of any document or other item deposited with it or of
any signature thereon and shall not have any liability for acting in accordance
with any written instructions or certificates given to it hereunder and believed
by it to be signed by the proper parties. If the Escrow Agent shall receive
conflicting instructions, it shall advise Company and PPTI of such fact. Company
and PPTI shall have ** to resolve the conflicting instructions and jointly
notify the Escrow Agent. If the Escrow Agent is not timely jointly notified, it
may at any time thereafter submit such conflict to arbitration in accordance
with the provisions of Section 9(c).
                       ------------

          (c)  The Escrow Agent may resign and be discharged from its duties
hereunder at any time by giving at least 30 days' notice of such resignation to
Company and PPTI,

** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       4

<PAGE>

specifying a date upon which such resignation shall take effect; provided,
however, that the Escrow Agent shall continue to serve until its successor
accepts the appointment as new Escrow Agent. Upon receipt of such notice, a
successor escrow agent shall be appointed by Company and PPTI, such successor
escrow agent to become the Escrow Agent hereunder on the resignation date
specified in such notice. If an instrument of acceptance by a successor escrow
agent shall not have been delivered to the Escrow Agent within 40 days after the
giving of such notice of resignation, the resigning Escrow Agent may at the
expense of Company request that an arbitrator appoint a successor escrow agent
in accordance with the provisions of Section 9(c). Company and PPTI, acting
                                     ------------
jointly, may at any time substitute a new escrow agent by giving 10 days' notice
thereof to the current Escrow Agent then acting and paying all expenses of the
current Escrow Agent.

          (d)  The Escrow Agent hereby agrees:

               (i)    to maintain the Escrow Material under this Escrow
Agreement in strictest confidence and secrecy;

               (ii)   not to make use of the Escrow Materials other than for the
performance of its obligations under this Escrow Agreement and shall not
disclose or release the same to any party other than in accordance with the
terms hereof; and

               (iii)  that the obligations imposed hereunder shall continue,
notwithstanding release of the Escrow Materials or termination of this Escrow
Agreement, until or unless as the Escrow Materials falls within the public
domain, through no fault of the Escrow Agent.

     9.   Miscellaneous.
          -------------

          (a)  Notices. All notices, claims, certificates, requests, demands and
               -------
other communications hereunder shall be in writing and shall be delivered
personally or sent by facsimile transmission, air courier, or registered or
certified mail, return receipt requested, addressed as follows:

     If to PPTI to:
     -------------

          Protein Polymer Technologies, Inc.
          10655 Sorrento Valley Road
          San Diego, California 92121
          Fax: (619) 558-6477
          Attention: President

     with a copy to:

          Piper Marbury Rudnick & Wolfe
          203 North LaSalle Street
          Chicago, IL 60601
          Fax: (312) 630-5322
          Attention: John H. Heuberger

                                       5

<PAGE>

     If to Company to:
     ----------------

          Spine Wave, Inc.
          12230 El Camino Real, Suite 300
          San Diego, California 92130
          Attention: David Coats
          Fax: (858) 350-7951

     with a copy to:

          Brobeck, Phleger & Harrison LLP
          12390 El Camino Real
          San Diego, California 92130
          Attention: Faye H. Russell, Esq.
          Fax: (858) 720-2555

     If to Escrow Agent to: to the address specified on Exhibit A attached
     ---------------------
hereto.

or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
communication shall be deemed to have been delivered (i) when delivered, if
delivered personally, (ii) when sent (with confirmation received), if sent by
facsimile transmission on a business day, (iii) on the first business day after
dispatch (with confirmation received), if sent by facsimile transmission on a
day other than a business day, (iv) on the third business day after dispatch, if
sent by air courier, and (v) on the fifth business day after mailing, if sent by
registered or certified mail.

          (b)  Severability. In the event that any provision of this Escrow
               ------------
Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Escrow
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Escrow Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.

          (c)  Governing Law; Dispute Resolution. Any controversy or claim
               ---------------------------------
arising out of or relating to the Escrow Agreement, or the parties' decision to
enter into this Escrow Agreement, or the breach hereof, shall be settled by
arbitration in accordance with the International Arbitration Rules of the
American Arbitration Association ("AAA"), and judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
Notwithstanding the forgoing to the contrary or in the arbitration rules invoked
or in this Section 9(c), the parties retain the right to request a judicial
           ------------
authority to invoke interim measures of protection, and such request shall not
be deemed incompatible with this agreement to arbitrate or a waiver of the right
to arbitrate.

                                       6

<PAGE>

     The arbitration shall be held in either (i) San Diego or (ii) the city in
which the Company's principal place of business is located, at the discretion of
the party against whom the arbitration is sought, and the arbitrator shall apply
the substantive law of the State of California, except that the interpretation
and enforcement of this arbitration provision shall be governed by the Federal
Arbitration Act. There shall be one (1) arbitrator to be mutually agreed upon by
the parties and to be selected from the Regional Panel of Distinguished
Neutrals. If the parties are unable to agree upon such an arbitrator who is
willing to serve within ten (10) days of receipt of a demand to arbitrate by the
other party, then the AAA shall appoint an arbitrator willing to serve from the
stated panel, or if no such panel exists, the parties shall within three (3)
days select one of the five (5) largest international accounting firms
(excluding those providing services for the parties) and engage the managing
partner or senior officer of its office located in the county in which the
Company's principal place of business is located to designate a partner of such
firm to serve as the arbitrator. Failing that, then the AAA shall appoint an
arbitrator willing to serve from the Regional Panel of Distinguished Neutrals,
or if no such panel exists, then from an appropriate AAA panel. It shall be the
duty of the arbitrator to set dates for preparation and hearing of any dispute
and to expedite the resolution of such dispute. Recognizing that the release of
Escrow Materials is time critical, the parties do hereby direct any arbitrator
hereunder to reach a decision regarding the release of Escrow Materials (which
may be a temporary or preliminary decision subject to such conditions as the
arbitrator may, in its sole discretion, order) within 30 days following his or
her engagement or appointment.

     It shall be the duty of the arbitrator to set dates for preparation and
hearing of any dispute and to expedite the resolution of such dispute. The
arbitrator shall permit and facilitate discovery, which will be conducted in
accordance with the Federal Rules of Civil Procedure, taking into account the
needs of the parties and the desirability of making discovery expeditious and
cost-effective. The arbitrator will set a discovery schedule with which the
parties will comply and attend depositions if requested by either party. The
arbitrator will entertain such presentation of sworn testimony or evidence,
written briefs and/or oral argument as the parties may wish to present; however,
no testimony or exhibits will be admissible unless the adverse party was
afforded an opportunity to examine such witness and to inspect and copy such
exhibits during the pre-hearing discovery phase. The arbitrator shall among his
other powers and authorities, have the power and authority to award interim or
preliminary relief. The arbitrator shall not be empowered to award either party
exemplary or punitive damages or any enhanced damages for willful infringement
and the parties shall be deemed to have waived any right to such damages.

     A qualified court reporter will record and transcribe the proceedings. The
decision of the arbitrator will be in writing and judgment upon the award by the
arbitrator may be entered into any court having jurisdiction thereof. Prompt
handling and disposal of the issue is important. Accordingly, the arbitrator is
instructed to assume adequate managerial initiative and control over discovery
and other aspects of the proceeding to schedule discovery and other activities
for substantially continuous work, thereby expediting the arbitration as much as
is deemed reasonable to him, but in all events to effect a final award within
365 days of the arbitrator's selection or appointment and within 20 days of the
close of evidence.

     The proceedings shall be confidential and the arbitrator shall issue
appropriate protective orders to safeguard both parties' confidential
information and the Escrow Materials. The fees of

                                       7

<PAGE>

the arbitrator and the AAA shall be paid as designated by the arbitrator or, if
he shall not so designate, they shall be split equally between the parties.

          (d)  Binding Effect; Benefits; Assignment. This Escrow Agreement shall
               ------------------------------------
inure to the benefit of and be binding upon the parties hereto and their
respective permitted successors and assigns. Nothing contained herein shall give
to any other person any benefit or any legal or equitable right, remedy or
claim. This Escrow Agreement shall not be assignable by PPTI without the prior
written consent of Company, which consent may be withheld in the sole discretion
of Company. Notwithstanding the foregoing, no consent of Company shall be
required if such assignment is in connection with the sale or transfer of all or
substantially all of the assets of PPTI or the merger or consolidation of PPTI
with or into any other business entity. Company shall be permitted to assign
this Escrow Agreement upon written notice to PPTI to any party to which it
assigns all of its rights under the License Agreement or sells or transfers all
or substantially all of its assets. No such assignment shall relieve the
assigning party of its underlying obligations under this Escrow Agreement.

          (e)  Entire Escrow Agreement; Amendments. This Escrow Agreement and
               -----------------------------------
the other writings referred to herein or delivered pursuant hereto which form a
part hereof contain the entire understanding of the parties with respect to its
subject matter. This Escrow Agreement may be amended only by a written
instrument duly executed by the parties hereto.

          (f)  Waivers. It is further understood and agreed that no failure or
               -------
delay by either party hereto in exercising any right, power or privilege under
this Escrow Agreement shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege hereunder.

          (g)  Counterparts. This Escrow Agreement may be executed in any number
               ------------
of counterparts, and execution by each of the parties of any one of such
counterparts will constitute due execution of this Escrow Agreement. Each such
counterpart hereof shall be deemed to be an original instrument, and all such
counterparts together shall constitute but one agreement.

          (h)  Headings. The article and section headings contained in this
               --------
Escrow Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Escrow Agreement.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       8

<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Escrow Agreement to be
signed by authorized persons, whereupon it became binding on the parties as of
the date first above written.

SPINE WAVE, INC.                       PROTEIN POLYMER TECHNOLOGIES, INC.

By:  ___________________________       By: _____________________________________
     David Coats                           J. Thomas Parmeter, President and CEO
     President and
     Chief Executive Officer

                                       9

<PAGE>

                                    EXHIBIT A
                                    ---------

     The undersigned party hereby agrees to be the Escrow Agent, and perform all
duties and fulfill all obligations of the Escrow Agent, pursuant to and under
that certain Escrow Agreement dated as of __________, 2001 between Protein
Polymer Technologies, Inc. and Spine Wave, Inc.

                                      ESCROW AGENT:

                                      Name:_____________________________________

                                      Address:__________________________________

                                      Telephone:________________________________

                                      Fax:______________________________________

                                      By:_______________________________________

                                      Name:_____________________________________

                                      Title:____________________________________

                                      Date:_____________________________________

                                   EXHIBIT A

<PAGE>

                                   SCHEDULE 1
                                   ----------

                  GENE CONSTRUCTION TECHNOLOGY ESCROW MATERIALS
                  ---------------------------------------------

Gene Construction Technology Escrow Materials:
---------------------------------------------
**.

Initial Deposit:
---------------
** following delivery of notice to PPTI from Company that biomechanical standard
has been met.

Release to Company:
------------------
Upon request after completion of **.

** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                   SCHEDULE 1

<PAGE>

                                   SCHEDULE 2
                                   ----------

             BIOMECHANICAL STANDARD FORMULATION(S) ESCROW MATERIALS
             ------------------------------------------------------

Biomechanical Standard Formulation(s) Escrow Materials:
------------------------------------------------------
**.

Initial Deposit:
---------------
** following delivery of notice to PPTI from Company that biomechanical standard
has been met.

Release to Company:
------------------
PPTI material breach (uncured) of Supply Agreement.

** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                   SCHEDULE 2

<PAGE>

                                   SCHEDULE 3
                                   ----------

                     COMMERCIAL PRODUCTION ESCROW MATERIALS
                     --------------------------------------

Commercial Production Escrow Materials:
--------------------------------------
**.

Initial Deposit:
---------------
** following delivery of notice to PPTI from Company that IDE (or, for updates,
manufacturing supplement or marketing approval submission) has received
regulatory approval.

Release to Company:
------------------
Release on a product by product basis upon notice of (1) commercial
manufacturing of Product by persons other than PPTI following PPTI's election
not to commercially manufacture Product under its commercial manufacturing
rights; (2) PPTI material breach (uncured) of any commercial supply agreement;
or (3) PPTI material breach (uncured) of Supply Agreement.

** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                   SCHEDULE 3

<PAGE>

                                   SCHEDULE 4
                                   ----------

               PROTEIN POLYMER DESIGN AND SUPPLY ESCROW MATERIALS
               --------------------------------------------------

Protein Polymer Design and Supply Escrow Materials:
--------------------------------------------------
**.

Initial Deposit:
---------------
** following delivery of notice to PPTI from Company that biomechanical standard
has been met.

Release to Company:
------------------
Release on a relevant culture-by-culture and protein specific basis, upon (1)
Company notice to PPTI of initiation of internal Design Services effort (as
provided in the Supply Agreement) specifying needed materials; or (2) notice of
Design Services by persons other than PPTI following PPTI's election not to
supply Design Services under its Design Services rights under the Supply
Agreement.

Release of all Protein Polymer Design and Supply Escrow Materials if PPTI
material breach (uncured) of Supply Agreement.

** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                   SCHEDULE 4<PAGE>

                                                                   Exhibit 10.41

                          SUPPLY AND SERVICES AGREEMENT

     THIS SUPPLY AND SERVICES AGREEMENT (this "Agreement") is made and entered
into this 12th day of April, 2001 (the "Effective Date") by and between PROTEIN
POLYMER TECHNOLOGIES, INC., a Delaware corporation ("PPTI") and SPINE WAVE,
INC., a Delaware corporation ("Company").

                              W I T N E S S E T H:

     WHEREAS, PPTI and Company are parties to the License Agreement between
Company and PPTI of even date herewith (the "License Agreement") wherein Company
has acquired from PPTI a license to Intellectual Property for use in the Field.

     WHEREAS, PPTI has experience in the development of Products and has the
facilities, equipment, employees, materials and other resources to accomplish
development and manufacturing activities, on behalf of Company, with respect to
the Intellectual Property.

     WHEREAS, Company desires to engage PPTI to perform such services and
provide such materials in connection with the development and manufacturing
activities, and PPTI is willing to provide such services and materials.

     NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt, sufficiency and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:

     1.   Definitions. All capitalized terms used but not defined in this
          -----------
Agreement shall have the meanings ascribed thereto in the License Agreement. The
following terms shall have the meanings set forth below:

     "Additional Services" shall mean the individuals, services and rates set
forth on Schedule 5 attached hereto.
         ----------

     "Additional Term" shall mean the term commencing on the first day of the
eleventh (11th) consecutive month following the Effective Date and expiring on
the last day of the twenty-fourth (24th) consecutive month following the
Effective Date.

     "Clinical Use" shall mean use in human clinical trials.

     "Direct Cost" shall mean solely the costs and expenses of (i) raw materials
and supplies, (ii) payroll costs (burdened to include benefits and payroll
taxes, but not facilities or overhead costs), (iii) that portion of utilities
used in the manufacture of Qualified Lots and (iv) the applicable quality
control tests as set forth on Schedule 3.
                              ----------

     "Escrow Agreement" shall mean that certain escrow agreement between PPTI
and Company of even date herewith.

                                        1

<PAGE>

     "Escrow Materials" shall have the meaning set forth in the Escrow
Agreement.

     "Fully-Burdened Cost" shall mean all of the direct and proportional
indirect costs and expenses for providing the specified Materials or services,
including but not limited to raw materials and supplies, labor, equipment,
utilities, facilities and overhead as determined according to generally accepted
accounting principles (GAAP) consistently applied.

     "Initial Services" shall mean the individuals, services and rates set forth
on Schedule 4 attached hereto.
   ----------

     "Initial Term" shall mean the term commencing on the Effective Date and
continuing for ten (10) consecutive months thereafter.

     "Materials" shall mean materials provided by PPTI to the Company including
a minimum of two (2) protein polymers plus crosslinker used in prior spine
studies by PPTI and the manufacture of protein polymers on an ongoing as
requested basis of up to one Qualified Lot per month.

     "Non-Clinical Use" shall mean use in pre-clinical studies, including animal
studies.

     "PPTI Facilities" shall mean PPTI's offices and laboratory space located at
10655 Sorrento Valley Road, San Diego, California 92121 or, in the event PPTI no
longer maintains offices and laboratory space at such address, such new address
as PPTI shall maintain offices and/or laboratory space.

     "Protein Polymer Design and Supply Services Escrow Materials" shall have
the meaning set forth in the Escrow Agreement.

     "Purchase Agreement" shall mean that certain founders stock purchase
agreement entered into between PPTI and the Company of even date herewith.

     "Qualified Lot" shall mean any lot of Material which has successfully
passed the quality control procedures set forth on Schedule 3 and designated for
                                                   ----------
such lot by Company.

     "Regulatory Approval" shall mean with respect to any country, filing for
and receipt of all regulatory agency or other registrations and approvals
required in such country in respect of Materials for any purpose specified in
this Agreement or, if no purpose is specified, to enable the Materials to be
manufactured and for Non-Clinical Use or Clinical Use to take place in such
country.

     "Start-Up Term" shall mean the term commencing on the Effective Date and
continuing until the earlier of i) the date on which the Company completes the
sale or sales of shares of its preferred stock resulting in aggregate gross
proceeds to the Company in excess of $10 million, or ii) upon the expiration of
twenty-four (24) consecutive months following the Effective Date; provided
however, that in no event shall this term expire prior to the last day of the
twelfth consecutive month following the Effective Date.

                                       2

<PAGE>

     "Voting Agreement" shall mean that certain voting agreement entered into
between PPTI, the Company and the Company's stockholders dated of even date
herewith.

     2.   Supply of Materials.
          -------------------

          (a)  During the Start-Up Term, PPTI shall provide Materials to Company
and Company shall purchase Materials from PPTI for Non-Clinical Use as set forth
in Schedule 1 attached hereto.
   ----------

          (b)  After the Start-Up Term or for purchases of Materials made for
Clinical Use during the Start-Up Term, PPTI shall provide Materials to the
Company and Company shall purchase Materials from PPTI as set forth in Schedule
                                                                       --------
2 attached hereto.
-

          (c)  At Company's request and expense at any time after the Initial
Term, PPTI shall promptly establish, qualify, procure any necessary permits and
certifications for and otherwise prepare for operation a back-up manufacturing
site for the manufacture of any protein polymers manufactured by PPTI or that
PPTI is obligated to manufacture under this Agreement. PPTI agrees that any
contract between PPTI and a third party for such back-up manufacturing site
shall provide for **.

     3.   Production and Quality Control.
          ------------------------------

          (a)  PPTI warrants, represents and covenants that all Materials
produced for or sold to Company shall be manufactured free from defects in
materials and workmanship and in accordance with specifications set forth in
paragraph (b) below. Further, PPTI warrants, represents and covenants that the
Materials will meet the specifications in any applicable Regulatory Approvals,
including compliance with applicable Quality System Regulations and ISO 9001
Standards in effect at the time of production and/or such other lawful and
appropriate standards as the parties may agree upon in writing. Company
acknowledges that production specifications may be changed from time to time to
comply with applicable laws and regulations.

          (b)  At Company's request, PPTI shall perform one or more of the
quality control procedures set forth on Schedule 3 for each lot of Material
                                        ----------
provided to Company. PPTI shall deliver to Company a copy of test results for
each lot of Material supplied to Company. All Material supplied to Company shall
have passed such quality control tests and PPTI shall immediately bring to the
attention of Company any Material that did not meet such quality control
requirements. Materials that meet such quality control requirements and which
are not objected to by Company within thirty (30) days after receipt shall be
presumed to be free from defects in material and workmanship, in the absence of
manifest error.

          (c)  PPTI shall retain samples of all ingredients, packaging
materials, records and data as may be in accordance with the sample and record
retention policies which PPTI uses in connection with manufacture of Materials
for its own account; provided such retention shall at all times be in accordance
with all applicable Regulatory Approvals, Quality System Regulations and ISO
9001 Standards. Company shall have the right, no more frequently than once every
twelve (12) months, to review PPTI's manufacturing procedures and operations and
its records relating to the manufacture and shipment of Materials. No inspection
or testing of Materials by Company, or failure to test or inspect, shall relieve
PPTI of its obligations hereunder. Copies of

**Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       3

<PAGE>

any certificates, reports, test results or other information produced by PPTI,
or by a third party consultant or contractor at PPTI's request, that directly
relate to lots of Material sold to Company shall, upon the written request of
Company, be furnished to Company and may be relied upon by it.

     4.   Services.
          --------

          (a)  During the Initial Term, PPTI shall provide Initial Services as
specified in Schedule 4 attached hereto at the Company's request on an as needed
             ----------
basis;

          (b)  During the Additional Term, PPTI shall provide Additional
Services as specified in Schedule 5 attached hereto at the Company's request on
                         ----------
an as needed basis;

          (c)  In the event Company determines to have a third-party construct
DNA encoding protein polymers and conduct related research and development
services including, but not limited to, process development and assay
development ("Design Services"), the Company and PPTI shall proceed as follows:

               (i)   Company shall first deliver to PPTI a proposal setting
forth the specific Design Services requested (the "Noticed Design Services").

               (ii)  Upon expiration of the ** following receipt of such notice,
PPTI shall give written notice to Company of its intention to provide the
Noticed Design Services. If PPTI does not timely give such written notice to
Company, the applicable Protein Polymer Design and Supply Services Escrow
Materials shall be released from escrow in accordance with Section 5(a)(viii) of
the Escrow Agreement.

               (iii) In the event PPTI elects to provide the Noticed Design
Services, PPTI shall provide such services to Company ** and the parties shall
negotiate in good faith all other terms and conditions relating to the provision
of the Noticed Design Services, including, all benchmarks, deliverables, and
remedies for breach. In the event the parties are unable to execute an agreement
for the Noticed Design Services within ** after PPTI delivers its notice (the
"Negotiation Period"), Company may enter into negotiations with any third party
to provide the Noticed Design Services upon terms not less favorable in the
aggregate to Company than those specified in the last written offer made by PPTI
to Company. In determining whether any third party's terms are less favorable in
the aggregate to Company, the parties shall consider PPTI's proposed **. Upon
execution of an agreement with a third party according to the provisions set
forth herein, the applicable Protein Polymer Design and Supply Services Escrow
Materials shall be released from escrow in accordance with Section 5(a)(viii) of
the Escrow Agreement

               (iv)  Company may not enter into an agreement for the Noticed
Design Services on terms less favorable in the aggregate to Company without
first re-offering the Noticed Design Services on such terms to PPTI, and PPTI
shall have ** to accept such proposal (the "Re-Offer Period"). In the event that
PPTI does not accept within the Re-Offer Period, Company shall have the right to
execute an agreement with such third party to provide the Noticed Design Service
and the applicable Protein Polymer Design and Supply Services Escrow

**Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       4

<PAGE>

Materials shall be released from escrow in accordance with Section 5(a)(viii) of
the Escrow Agreement.

               (v)   If Company has not entered into a definitive agreement with
a third party for the Noticed Design Services within ninety (90) days after the
later of the expiration of the Negotiation Period or the Re-Offer Period, then
the Company shall repeat the procedure set forth in this paragraph (c) prior to
entering in to any such definitive agreement.

               (vi)  PPTI hereby consents to and acknowledges that, upon release
to Company of the applicable Protein Polymer Design and Supply Services Escrow
Materials, according to the terms of this paragraph (c) and Section 5(a)(viii)
of the Escrow Agreement, Company, or any third party employed by Company, shall
have the right to use such materials to perform the Noticed Design Services;
provided however, that Company's transfer of such materials to any third-party
shall be conditioned on PPTI's prior approval, which shall not be unreasonably
withheld, delayed or conditioned.

               (vii) PTI hereby acknowledges that the Company shall at all times
be free to perform the Design Services itself without adhering to the
requirements of this paragraph (c) and that, notwithstanding anything to the
contrary contained herein, the applicable Protein Polymer Design and Supply
Services Escrow Materials shall be released to Company in accordance with
Section 5(a)(viii) of the Escrow Agreement.

          (d)  Upon formation of a scientific review board by Company and until
expiration of the License Agreement, PPTI shall, subject to Company's reasonable
approval, appoint one (1) individual to serve as a member of such board;
provided however, that **. Company shall pay PPTI ** per quarter and reimburse
reasonable out-of-town travel and lodging expenses related to such individual's
participation on the board; provided however, that PPTI shall not invoice and
Company shall not be obligated to pay any amounts for such service during the
Initial Term other than reimbursement of reasonable out-of-town travel and
lodging expenses.

          (e)  Upon mutual agreement by PPTI and the Company, PPTI will
reasonably attempt to provide other additional support and services as may be
requested by Company upon the terms and conditions mutually agreed to by the
parties in writing.

     5.   Work Space and Equipment.
          ------------------------

          5.1  General. During the Initial Term and, at Company's request during
               -------
the Additional Term, PPTI shall provide the following accommodations to the
Company at PPTI Facilities to support feasibility studies within the scope of
the License Agreement:

          **.

During the Initial Term, PPTI shall provide the accommodations listed above to
Company **. During the Additional Term, PPTI shall charge Company ** for such
accommodations as used by Company.

**Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       5

<PAGE>

     6.   Price and Payment Terms.
          -----------------------

          (a)  On the Effective Date and thereafter on a monthly basis during
the Initial Term the Company shall pay PPTI ** (such monthly amount referred to
as the "Minimum Payments"). During the Initial Term, PPTI will not invoice
Company for any payment amounts for Materials and Initial Services accrued
during the Initial Term, and any such payment amounts shall be paid, if
necessary, in accordance with Section 6(b) and 6(d) below.

          (b)  Within ** after expiration of the Initial Term, PPTI shall
provide the Company with a statement (i) setting forth the Materials and Initial
Services provided during the Initial Term and the related costs for such
Materials and Initial Services, and (ii) itemizing any applicable credits due to
Company or excess payments due to PPTI pursuant to paragraph (d) below.

          (c)  Upon expiration of the Initial Term and within ** after the
expiration of each consecutive ** period thereafter, PPTI shall provide the
Company with a ** statement (i) setting forth the Materials, Additional
Services, Design Services and other services provided to Company by PPTI and the
related costs, and (ii) deducting any applicable credits to offset such expenses
due to the Company pursuant to paragraph (d) below. Company shall make such
payment within fifteen (15) days after receipt of the statement.

          (d)  Notwithstanding anything else to the contrary contained herein,
the parties agree that:

               (i)    Upon expiration of the Initial Term, if the Company has
paid the Minimum Payment each month of the Initial Term and has not received an
aggregate of Initial Services and/or Materials equal to **, the Company shall
receive a credit from PPTI equal to such difference which may be applied toward
payments by the Company to PPTI according to paragraph (d)(ii) below, or for
Materials, Additional Services, Design Services and/or other services provided
hereunder.

               (ii)   Upon expiration of the Initial Term, if the Company has
paid the Minimum Payment each month of the Initial Term and has received an
aggregate of Initial Services and/or Materials in excess of **, the Company
shall be required to pay such additional amounts within fifteen (15) days after
receipt of the statement described in paragraph (c) above; provided however, in
the event that this Agreement is terminated prior to the expiration of the
Initial Term, Company **.

               (iii)  Until the Company receives at least one (1) Qualified Lot
of Material from PPTI, the Company shall not be required to pay PPTI any amounts
in excess of an aggregate of $100,000.

          (e)  PPTI shall keep and maintain adequate records and books of
account documenting all of its expenses related to the services and materials
provided to Company hereunder. At Company's request and expense, PPTI shall
permit a certified independent public accountant selected by Company to have
access, no more than once in each year during the term of this Agreement and
once during the twelve (12)-month period following receipt by PPTI of

**Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       6

<PAGE>

the last payment from Company of amounts due hereunder, during regular business
hours and upon reasonable notice to PPTI, to such records and books for the sole
purpose of verifying costs invoiced hereunder; provided, however, that if such
certified independent public accountant reasonably determines that such costs
have been, after adjustments herein provided for, overstated or understated by
PPTI, Company shall promptly pay any such understatement to PPTI and PPTI shall
promptly refund any such overpayment to Company, and if such costs were
overstated by PPTI by an amount equal to or greater than **, PPTI shall also pay
all reasonable fees and disbursements of such certified independent public
accountant incurred in the course of making such determination.

     7.   Representations, Warranties and Covenants.
          -----------------------------------------

          (a)  PPTI represents and warrants to Company that it is duly
authorized and empowered to enter into and perform this Agreement; and the
execution and performance of this Agreement by PPTI does not and will not
conflict with or violate any contract, agreement, indenture, mortgage,
instrument, writ, judgment, or order of any court, arbiter or governmental or
quasi-governmental body to which PPTI is a party or by which PPTI is bound.

          (b)  PPTI represents and warrants to Company that prior to first
shipment of the Materials it will have received all necessary licenses, permits
and Regulatory Approvals for manufacture of Materials.

          (c)  PPTI agrees to adhere to all known laws, rules and regulations
applicable to the manufacture of Materials under this Agreement and warrants
that the Materials will be manufactured in accordance with all applicable
specifications and will be delivered to Company free and clear of all third
party claims, liens and encumbrances.

          (d)  PPTI represents and warrants to Company that PPTI shall use
commercially reasonable efforts to perform the Initial Services, Additional
Services, Design Services and all other services performed hereunder in a good
and workmanlike manner.

          (e)  PPTI represents and warrants to Company that it has sufficient
right and title to and ownership of, sufficiently free and clear of all liens,
claims and encumbrances of any nature, the Intellectual Property and has
sufficient right or title to or ownership of, sufficiently free and clear of all
liens, claims and encumbrances of any nature all equipment related to the
manufacture and design of protein polymers, to perform its obligations under
this Agreement.

          (f)  Company represents and warrants to PPTI that it is duly
authorized and empowered to enter into and perform this Agreement; and the
execution and performance of this Agreement by Company does not and will not
conflict with or violate any contract, agreement, indenture, mortgage,
instrument, writ, judgment, or order of any court, arbiter or governmental or
quasi-governmental body to which Company is a party or by which Company is
bound.

          (g)  **.

**Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       7

<PAGE>

     8.   Term and Termination.
          --------------------

          (a)  The term of this Agreement shall commence as of the date hereof
and, unless terminated earlier pursuant to the provisions of this Agreement,
shall expire upon the expiration or termination of the License Agreement.

          (b)  The obligations of a party under this Agreement (but not its
rights hereunder) may be terminated by such party if: (i) subject to Section 9
below, the other party fails to perform any material term, provision, covenant
or obligation imposed upon it under this Agreement, which failure or refusal
shall continue for ** following written notice thereof from the non-defaulting
party specifying the event of default; or (ii) the other party is dissolved or
liquidated, makes a general assignment for the benefit of its creditors, files a
voluntary petition under any applicable bankruptcy or insolvency law, has a
receiver appointed for its property, or has a petition for bankruptcy or
insolvency filed against it which petition is not dismissed or vacated within **
after filing; in both instances, PPTI shall be under no obligation to provide
Company with Materials, Initial Services, Additional Services or Design Services
during the cure period if Company has failed to pay PPTI any sums due under this
Agreement and Company shall not be entitled to Escrow Materials during the cure
period.

          (c)  The failure of a party to terminate its obligations under this
Agreement by reason of the breach of any of the provisions by the other party
shall not be construed as a waiver of the rights or remedies available for any
subsequent breach of the terms and provisions of this Agreement.

          (d)  A party electing to terminate its obligations under this
Agreement shall also be entitled to pursue such additional remedies at law or in
equity that it may have as a result of a breach of or default under this
Agreement by the other party.

          (e)  Any party bringing action to enforce the obligations of the other
party or its rights under this Agreement shall be entitled to recover all costs
and expenses (including reasonable attorneys fees and court costs) incurred by
it in such enforcement action.

     9.   Force Majeure.
          -------------

          (a)  The obligations of a party hereunder shall be suspended by the
occurrence of any event beyond the control of such party, such as acts of God,
war, warlike conditions, strikes, lockouts, power failures, the elements,
embargoes, or law, regulation or governmental order, whether or not valid,
restricting performance; provided, however, that such party shall take
reasonable measures to remove the disability or restriction and resume
operations at the earliest possible date.

          (b)  Subject to compliance with paragraph (c) below, any delay in or
failure of performance by either party under this Agreement as a result of a
Force Majeure shall not be considered a breach of this Agreement during the
period of delay.

          (c)  Any party affected by such Force Majeure who wishes to rely on
the provisions of paragraph (a) above shall as soon as reasonably practicable
give notice to the other

**Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       8

<PAGE>

party specifying the matters constituting Force Majeure together with such
evidence thereof as it can reasonably give and specifying the period for which
it is estimated that such delay will continue.

     10.  Indemnification.
          ---------------

          (a)  Each party ("Indemnitor") agree to indemnify, defend and hold
harmless the other party ("Indemnitee") from and against all liabilities,
losses, costs, damages and expenses (excluding fees and disbursements of the
Indemnitee's counsel and court costs, except as provided below) caused by,
arising out of resulting from (i) the Indemnitor's gross negligence or willful
misconduct in carrying out its obligations under this Agreement, (ii) the
Indemnitor's failure to comply with any law or regulation applicable to the
performance of its obligations under this Agreement, (iii) any liabilities of
Indemnitor in respect of recalls, in any such case that is not based on any act
or omission or alleged act or omission of the Indemnitee, (iv) a claim of
intellectual property infringement caused by the specific manner of use of a
Product by Company, or its Affiliates, sub-licensees or distributors, (v) with
respect to the Materials manufactured by PPTI, any claim of infringement of
composition of matter or method of manufacture by PPTI, or (vi) with respect to
Materials not manufactured by PPTI, any claim of infringement of intellectual
prorperty rights relating to **. The indemnity provided above shall not extend
to any liabilities, losses, costs, damages or expenses caused by or resulting
from or arising out of any act or omission or breach of representation, warranty
or covenant of the Indemnitee.

          (b)  Each party agrees to give the other party prompt notice of any
claim or demand made or the institution of any suit or proceeding brought upon
the grounds referred to under this Section 10, and to permit the Indemnitor to
conduct the defense of any such claim, demand, suit, or proceeding, and to give
the Indemnitor all information in its possession which is pertinent to the
defense of any such claim, demand, suit or proceeding, and to give the
Indemnitor the authority and assistance appropriate or necessary to enable the
Indemnitor to carry on such defense and any appeal from a judgment or decree
rendered in any such suit or proceeding. However, nothing in this Section 10(b)
will prevent the Indemnitee from engaging its own counsel in any such matter
and, if there shall exist a bona fide conflict between the rights and interest
of the indemnifying party and the indemnified party, from being indemnified with
respect to such engagement to the extent provided in this Section 10.

          (c)  Without its prior consent, PPTI will not be responsible for or
bound by any compromise made by Company in any matter in which Company is
indemnified by PPTI. Without its prior consent, Company will not be responsible
for or bound by any compromise made by PPTI in any matter in which Company is
indemnified by PPTI.

          (d)  The Indemnitee agrees to give the Indemnitor prompt notice of any
claim, demand, suit or proceeding asserted, made or brought against the
Indemnitee (including any claim, demand, suit or proceeding asserted, made or
brought by any governmental authority) for which the Indemnitor might be liable
under the foregoing provisions. However, the failure to give prompt notice shall
not relieve the Indemnitor from its obligations hereunder unless the failure to
give prompt notice has materially and adversely affected the Indemnitor's
defense of the claim or action.

**Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       9

<PAGE>

     11.  Product Liability Insurance. Company and PPTI shall, prior to
          ---------------------------
commencement of activities involving Clinical Use of the Materials, and at all
times thereafter until 12 months after the expiration or termination of this
Agreement, each carry such products liability and comprehensive general
liability insurance, naming the other party as an insured under such policy, and
in such amounts and subject to such other requirements and restrictions as may
be customary in the United States. PPTI and Company shall have the right to
audit the other party to ensure compliance with this obligation. The parties
agree that any failure to comply with the obligations of this Section 11 shall
be deemed a material breach of this Agreement.

     12.  Confidentiality.
          ---------------

          (a)  Subject to paragraph (c) and the terms of the Escrow Agreement,
during the term of this Agreement and for a period of ** thereafter, each party
shall maintain in confidence and shall not disclose to any third party any
know-how, trade secrets, business or technical information or other information
("Confidential Information") received from the other party relating to Product,
and shall not use the other party's Confidential Information except for the
purposes of this Agreement without the prior written consent of such other
party. These confidentiality and non-use obligations shall not apply to any
Confidential Information that the receiving party can demonstrate:

               (i)    at the time of disclosure to the receiving party was, or
thereafter becomes, a part of the public domain through no fault of the
receiving party, its Affiliates, distributors or sub-licensees;

               (ii)   was subsequently lawfully disclosed to the receiving party
by a third party not under an obligation of confidentiality with or through the
disclosing party;

               (iii)  was in the lawful possession of the receiving party prior
to disclosure by the disclosing party; or

               (iv)   is required to be disclosed by judicial or administrative
order provided that notice is given to the disclosing party and the disclosing
party has an opportunity to seek a protective order, and further provided, that
disclosure is limited to compliance with the judicial or administrative order.

          (b)  During the term of this Agreement, each party shall take all
reasonable steps to:

               (i)    prevent any disclosure in breach of paragraph (a) of
Confidential Information of the other which would be materially prejudicial to
the interests of the other party;

               (ii)   limit the disclosure of information to such of its
Affiliates, distributors and sub-licensees and their respective employees as
require the information for the purposes of this Agreement; and

               (iii)  procure that the persons referred to in subparagraph (ii)
of this paragraph (b) enter into appropriate confidentiality agreements.

**Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                       10

<PAGE>

          (c)  Immediately upon the expiration or other termination of this
Agreement and the License Agreement, and except as provided for in the Escrow
Agreement, Company shall return to PPTI all of the Confidential Information in
its possession or control, except that one copy of such information may be
retained by Company's counsel under seal to evidence compliance with this
Agreement.

          (d)  Except as required by law or as expressly set forth herein,
neither party shall make any public statement, press release or other
announcement relating to the terms or existence of this Agreement, or the
business relationship of the parties, without the prior written consent of the
other party.

     13.  Limited Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
          -----------------
OTHERWISE, NEITHER PARTY SHALL BE LIABLE OR OBLIGATED UNDER ANY SECTION OF THIS
AGREEMENT OR UNDER CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY FOR ANY SPECIAL, EXEMPLARY, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES.

     14.  Notices. Notices hereunder shall be in writing and shall be deemed to
          -------
have been duly given if personally delivered or when sent by facsimile or other
telegraphic means. Such notices shall be effective upon receipt, if by personal
delivery, or if by facsimile, on the date of the confirmation of "ok"
transmission. Addresses and persons to be notified may be changed by either
party by giving written notice thereof to the other party.

          To Company:        Spine Wave, Inc.
                             12230 El Camino Real, Suite 300
                             San Diego, California 92130
                             Telecopy No: (858) 350-7951
                             Attn: David Coats

          With a copy to:    Brobeck, Phleger & Harrison LLP
                             12390 El Camino Real
                             San Diego, California 92130
                             Attention Fay H. Russell, Esq.
                             Fax: (858) 720-2555

          To PPTI:           Protein Polymer Technologies, Inc.
                             10655 Sorrento Valley Road
                             San Diego, California 92121
                             Telecopy No: (858) 558-6477
                             Attn: President

          With a copy to:    Piper, Marbury, Rudnick & Wolfe
                             203 North La Salle Street, Suite 1800
                             Chicago, Illinois 60601
                             Attn: John H. Heuberger, Esq.
                             Fax: (312) 630-5322

                                       11

<PAGE>

     15.  Miscellaneous.
          -------------

          (a)  This instrument, together with the Purchase Agreement, Voting
Agreement, the License Agreement and the Escrow Agreement constitute the entire
agreement between the parties with respect to the subject matter hereof. This
Agreement shall not be amended, varied, modified or supplemented except by an
agreement in writing signed by the party to be charged. To the extent the terms
of this Agreement shall conflict with the terms of the License Agreement, the
terms of the License Agreement shall control.

          (b)  The headings used herein are for ease of reference only and are
not to be used in the interpretation or construction of this Agreement.

          (c)  Neither party shall assign or otherwise transfer this Agreement
or any part hereof (and any attempt to do so will be void) to any third party
without the prior written permission of the other party, except to an entity
that acquires all or substantially all of such party's assets or operations.

          (d)  PPTI and Company shall at all times be and remain independent
contractors and not agents, partners or joint venturers of the other for any
purpose whatsoever and neither PPTI nor Company shall have authority to create
or assume any obligation, express or implied, in the name of or on behalf of the
other party or to bind the other party in any manner whatsoever.

          (e)  The failure of either party to enforce at any time or for any
period of time any one or more of the provisions hereof shall not be construed
to be a waiver of such provisions or of the right of such party thereafter to
enforce each such provision.

          (f)  This Agreement shall be construed and the rights of the parties
shall be determined in accordance with the substantive laws of the State of
California, without regard to its conflict of laws principles, except that the
arbitration provisions contained in the License Agreement shall apply to this
Agreement.

          (g)  This Agreement shall be binding upon and enure to the benefit of
the parties hereto, their successors and permitted assigns.

          (h)  Sections 6(e), 7(g), 8(d), 8(e), 10, 11, 12 and 13 dealing with
rights and obligations upon and/or after termination of this Agreement shall
survive termination of this Agreement to the extent necessary to give effect to
such provisions.

          (i)  This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original and together shall constitute one and the
same instrument.

                                       12

<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.

         SPINE WAVE, INC.

         By:_________________________________________
            David Coats
            President and Chief Executive Officer

         PROTEIN POLYMER TECHNOLOGIES, INC.

         By:__________________________________________
            J. Thomas Parmeter
            President and Chief Executive Officer

               [SIGNATURE PAGE TO SUPPLY AND SERVICES AGREEMENT]

<PAGE>

                                   SCHEDULE 1

           MATERIALS DURING THE START-UP TERM AND FOR NON-CLINICAL USE
           -----------------------------------------------------------

     During the Start-Up Term, PPTI shall supply Materials to the Company for
Non-Clinical Use at the Company's request as follows:

--------------------------------------------------------------------------------
 Material supplied by PPTI:                         Cost to Company:
 --------------------------                         ----------------
--------------------------------------------------------------------------------
 For each Qualified Lot of Material (except as      ** per each Qualified Lot
 set forth below)
--------------------------------------------------------------------------------
 For each Off-the-Shelf Lot of Material             **
--------------------------------------------------------------------------------
 For each Additional Qualified Lot of Material      ** per each Qualified Lot
--------------------------------------------------------------- ----------------

"Additional Qualified Lot" shall mean any Qualified Lot of Material ordered by
Company (i) after the Company orders ** Qualified Lots of Material and (ii) in
excess of ** Qualified Lot for any ** period; provided that, for purposes of
clarity, orders in any ** shall be counted toward any ** period with either the
immediately preceding or immediately subsequent **, but not both.

"Off-the-Shelf Lot" shall mean any lot of Material existing in PPTI's inventory
as of the date of this Agreement.

** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                  Schedule 1-1

<PAGE>

                                   SCHEDULE 2

             MATERIALS AFTER THE START-UP TERM AND FOR CLINICAL USE
             ------------------------------------------------------

     After the Start-Up Term or for purchases of Materials made for Clinical Use
during the Start-Up Term, PPTI shall provide Materials to the Company at the
Company's request as follows:

--------------------------------------------------------------------------------
 Material:                                            Cost:
 ---------                                            -----
--------------------------------------------------------------------------------
 Qualified Lot supplied by PPTI                       ** per each Qualified Lot
--------------------------------------------------------------------------------
 Qualified Lot supplied by third-party contract       ** per each Qualified Lot
 manufacturer
--------------------------------------------------------------------------------

** Material is confidential and has been omitted and filed separately with the
Securities and Exchange Commission.

                                  Schedule 2-1

<PAGE>

                                   SCHEDULE 3

                           QUALITY CONTROL PROCEDURES
                           --------------------------

**

**  Material is confidential and has been omitted and filed separately with the
    Securities and Exchange Commission.

                                  Schedule 3-1

<PAGE>

                                   SCHEDULE 4

                                INITIAL SERVICES
                                ----------------

**

** Material is confidential and has been omitted and filed separately with the
   Securities and Exchange Commission.

                                  Schedule 4-1

<PAGE>

                                   SCHEDULE 5
                               ADDITIONAL SERVICES
                               -------------------

**

** Material is confidential and has been omitted and filed separately with the
   Securities and Exchange Commission.

                                  Schedule 5-1

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