Sheffield-based The Medical House (TMH) also revealed it is also no longer in talks with an unnamed party over a bid approach.

Under the five-year development, licensing and supply agreement, TMH will customise its self-injectors for Indian-based Dr Reddy's, to use with a generic drug.

Dr Reddy's intends to launch the product in 2009/10, and TMH will receive a technology access fee for the duration of the deal.

Chairman Ian Townsend said: "We are delighted to have reached this agreement with such a well-respected company as Dr Reddy's.

"We see this as another endorsement of our technology and it adds another project and product to our growing list, which will provide us with a diverse income stream over a number of years.

"We very much look forward to working with Dr Reddy's and continue to be very confident on the continued success of our technologies."

The group's auto-injectors incorporate pre-filled syringes which can be easily used to self-administer drugs by pressing a button. The needle penetrates the skin to a pre-set depth and then automatically retracts. The device is less painful, messy and risky than normal pre-filled syringes.

Dr Reddy's will have the option of extending its agreement with TMH after the deal expires.

Mr Townsend said the technology will enable Dr Reddy's to "maintain a better margin by providing a better product".

"It's a tight timetable but it's very exciting for us," he said.

"It (Dr Reddy's) is a company with a pipeline of products and if we are successful here there's every chance that this relationship can extend to other products.

"It's the second most important deal we have done."

In November TMH announced it had extended a similar licensing agreement with a leading global pharmaceutical company from five to six years. It also projected an increase in revenues from £27m to £34m.

In April shares in TMH leapt when it received a bid offer. However, in a statement yesterday, the group said: "The directors of TMH now believe that an offer for the issue share capital will not come from this source."

Mr Townsend said it was a "relief" no longer having takeover talks hanging over the company, and would allow the group to concentrate on growth.