Dr Reddy's Laboratories said on Thursday Novartis has decided to stop further work on an anti-diabetes compound licensed to the Swiss drug maker, the second time in six months that a foreign partner has halted development of the Indian firm's drugs.

The Hyderabad-based company had licensed the insulin sensitizer DRF4158 to Novartis in May 2001 when it was in pre-clinical trial stages.

Dr Reddy's did not indicate why Novartis had discontinued work but said in a statement the Swiss firm would continue to work with Dr Reddy's on another dual-acting insulin sensitizer as part of the original agreement.

In July, Danish drug maker Novo Nordisk had also suspended development of another of Dr Reddy's dual-acting insulin sensitisers, NN622, after bladder tumours were found in a mouse and a number of rats treated with the drug.

"We accept the decision taken by Novartis and both parties are currently in close discussions on a series of potential dual-acting insulin sensitizer candidates for development," the statement quoted Dr Reddy's Chief Scientific Officer Uday Saxena as saying.

India's only drug firm listed on the New York Stock Exchange, Dr Reddy's said it will independently assess all the data on DRF4158 and do additional pre-clinical studies to decide an appropriate development path.