Biological agents such as secretory cells are encapsulated in a hydrophilic gel made of agarose or collagen-agarose and gelatin sponge-agarose combinations. In a preferred embodiment, semi-solid beads are formed from a suspension containing collagen, agarose and secretory cells such as pancreatic islets, the collagen is polymerized to form solid, agarose-collagen beads and the solid beads are coated with agarose. Coating is preferably by rolling the solid beads in about 5-10% agarose, contacting the rolled beads with mineral oil and washing oil from the beads. Beads containing secretory cells can be transplanted into a mammal to treat a condition caused by impaired secretory cell function.