Carclo said a review of the division, which was set up to commercialise self-reading point-of-care diagnostics technology, had failed to find any credible options for taking it forward.
The group also said the business would have needed rising investment and future commercial success was uncertain.
It has decided instead to focus on its two main divisions, technical plastics and LED technology.
“The board views the excellent growth prospects in both these divisions as the key drivers of group future performance,” it said.
Carclo will end its £1.5mln a year investment in the diagnostics business and will take a £1mln cost for closing it.
It plans to absorb the CDS intellectual property rights within the technical plastics division whilst it explores options to sell or license them.
Chief executive Chris Malley said: “The group's core focus and growth opportunities sit within our two main divisions, technical plastics and LED technologies, both of which are performing well."
Carclo gets about 60% of revenue from supplying fine tolerance, injection-moulded plastic components, mainly for medical products.
The rest comes mainly from designing and supplying specialised injection-moulded LED-based lighting systems to the low-volume premium automotive industry.