Anti-angiogenic therapies with vascular endothelial growth factor (VEGF) inhibiting factors are effective treatment options for neovascular diseases of the retina, but these proteins can only be delivered as intravitreal (IVT) injections. To sustain a therapeutic drug level in the retina, VEGF inhibitors have to be delivered frequently, every 4–8 weeks, causing inconvenience for the patients and expenses for the healthcare system. The aim of this study was to investigate cell encapsulation as a delivery system for prolonged anti-angiogenic treatment of retinal neovascularization. Genetically engineered ARPE-19 cells secreting soluble vascular endothelial growth factor receptor 1 (sVEGFR1) were encapsulated in a hydrogel of cross-linked collagen and interpenetrating hyaluronic acid (HA). The system was optimized in terms of matrix composition and cell density, and long-term cell viability and protein secretion measurements were performed. sVEGFR1 ARPE-19 cells in the optimized hydrogel remained viable and secreted sVEGFR1 at a constant rate for at least 50 days. Based on pharmacokinetic/pharmacodynamic (PK/PD) modeling, delivery of sVEGFR1 from this cell encapsulation system is expected to lead only to modest VEGF inhibition, but improvements of the protein structure and/or secretion rate should result in strong and prolonged therapeutic effect. In conclusion, the hydrogel matrix herein supported the survival and protein secretion from the encapsulated cells. The PK/PD simulation is a convenient approach to predict the efficiency of the cell encapsulation system before in vivo experiments.