Wool Equities has decided to sell its Keratec subsidiary to a US-based company because it found it was going to take too long for it to become profitable.
Keratec processes keratin proteins and peptides, found in wool, for use in health and consumer care products.
Last year shareholders criticised Wool Equities after the previous year's results showed Keratec had run up losses of about $4.5 million.
At the time, Wool Equities said it was optimistic about the prospects of making the Keratec business profitable, and was looking to expand its production offshore because its processing plant at Lincoln could not meet demand.
Company chairman Andy Pearce says more recent forecasts showed it was no longer worthwhile continuing to invest in the company.
It has now signed a non-binding letter of intent with its US-based partner company Keraplast for the sale of all shares in Keratec.
Mr Pearce says the company is considering using the proceeds of the sale for a share buy-back.