India's patent appeals office has rejected Bayer AG's (PINK:BAYRY) plea challenging the decision by the government of India that allowed an Indian drug manufacturer to produce and market a low cost generic version of its patented cancer medicine, Nexavar.

The landmark verdict could bring down the exuberant price of the patented life saving drug, while draining the margins of international drug manufacturers who would be forced to compete with generic manufacturers selling the drug at cheaper rates.  

The Indian government in March 2012, through its patents office allowed local drug manufacturer Natco Pharma Ltd, to produce a generic version of Bayer's cancer drug Nexavar saying it would help make the life-saving drug available at affordable prices to patients undergoing treatment for liver and kidney cancer.

The government’s decision based on the compulsory licensing under Indian patent laws passed in 2005 enabled sale of the generic version of Nexavar at a much cheaper price of 8,800 rupees ($176) for a 120-tablet pack, when compared to the Bayer's price of 280,000 rupees ($5600) for the same pack. To compensate Bayer, Natco Pharma was asked to pay 6 percent royalty on sales to the former.

Bayer challenged the patent office decision and moved India's patent appeals tribunal, the Intellectual Property Appeals Board, to stop the Hyderabad-based Natco Pharma from manufacturing and selling the drug, which rejected the German drug maker's plea, Monday.

Bayer said Tuesday it "strongly" disagreed with the appeal panel's decision and would pursue the case in the high court in India's commercial capital Mumbai, Associated Press has reported.

"Bayer is committed to protecting its patents for Nexavar and will rigorously continue to defend our intellectual property rights within the Indian legal system," the company said in a statement.

Multinational companies have been lobbying with the Indian government to bring in more stringent patent laws to control the thriving generic drug industry in the country alleging frequent patent violations. The companies argue that pro-generic laws are detrimental to the interests of companies that spend billions in research and development.

However, the government in its attempt to make healthcare affordable to millions of poor people in the country has been promoting cheap generic medicines.

In July 2012, Government of India in its ambitious vision of achieving Universal Health Coverage (UHC) initiated a $5.4-billion plan that would allow the government sector doctors to prescribe generic drugs to patients free of cost. The decision had left the pharmaceutical giants fuming as the government doctors were allowed to prescribe only generic drugs and not the branded ones under the new health plan. 

The patent appeals office’s decision - expected to have far-reaching effects on the multi-billion drug industry - has been welcomed by the health right groups as it would bring down the cost of life saving drugs. Health right activists argue that the patients from poor countries cannot afford the exorbitantly priced patented drugs from international companies.

The verdict also is expected to lead to a surge in applications under the compulsory licensing as more generic drug producers would come forward to explore similar opportunities with other patented life saving drugs.