Tranzyme Pharma said it stopped the second mid-stage trial of its drug to treat a type of paralysis of the stomach as the drug did not prove effective enough.
The drug was being tested for gastroparesis with a dosage of three times a day. It was dropped in an earlier trial with a daily dosage last month.
The drug, TZP-102, is still in early-stage trials for the treatment of other chronic gastrointestinal motility disorders.
Tranzyme, which went public in April 2010 at $4 per share, has two other products in early testing.
The company's experimental drug, ulimorelin, failed in May to improve gastrointestinal recovery after surgery in a late-stage trial.
Tranzyme's shares, which have lost about 81 percent of their value since they started trading on the Nasdaq, closed at 74 cents on Friday. They were down 24 percent before the bell.
(Reporting by Esha Dey and Vidya P L Nathan in Bangalore)