India's Supreme Court has rejected a plea by Swiss pharmaceutical manufacturer Novartis AG to patent an updated version of its cancer drug Glivec in a ruling activists claim will protect cheap generic medicines and save lives in the developing world.

Monday’s judgment, following a seven-year legal battle by the Basel-based company, clears the way for Indian drug makers to continue marketing copies of Glivec at significantly lower prices.

Glivec, used to treat chronic myeloid leukemia and other cancers, presently costs about $2,600 (€2,028) a month in India whilst its generic equivalent is available locally for $175 (€136).

Novartis had argued that it was entitled to a patent for the amended version of Glivec because the original compound was not suited to be turned into a pill.

The Swiss pharmaceutical giant said developing the final chemically stable form had taken years of research and it was this effort that had marked the real breakthrough in developing the life-saving cancer drug.

But in its ruling that struck directly at patent law in a country known as the world’s biggest pharmacy, the court said the revised Glivec compound “did not satisfy the test of (either) novelty or inventiveness” required by Indian legislation.

Indian law restricts pharmaceutical companies from seeking fresh patents after making minor modifications known in industry circles as “evergreening”.

Stating that it wanted to discourage “repetitive patenting”, the court said Novartis had to demonstrate that Glivec represented more than just a small improvement to an existing substance.

"This ruling is a setback for patents and will hinder medical progress for diseases without effective treatment options" said Ranjit Shahani, vice-chairman and managing director of Novartis India, the local unit of the Swiss company in Mumbai.

“The ecosystem in India to encourage investment is not there. We have been boxed in from all sides,” Shahani said as shares of Novartis India initially slid nearly 7 per cent shortly after the judgment but ended 1.81 per cent down at the end of trading later in the day.

The ruling, however, was greeted with celebrations outside the Supreme Court.

Ms Leena Menghaney, a lawyer with Médecins Sans Frontières, said the judgment had come as "a big relief" and would save lives in India and elsewhere in the developing world.

“Innovative medicines will still get patents in India, but the judgment means drug companies cannot keep seeking patents for small changes to one drug,” she said.

Lawyer Anand Grover, representing the Cancer Patients’ Aid Association in the case, said he was “ecstatic”. The ruling, he said, will “go a long way in providing affordable medicines for the poor”.

Market analysts too viewed the judgment as positive, believing it would provide a major boost to generic drug manufacturers in India who supply a range of medicines cheaply to developing countries.

They said it will also set a precedent for the “patent cliff”, a term used to describe the expiry of pharmaceutical patents across a range of top selling drugs.

It is estimated that drugs with combined annual sales of $150 billion (€117 billion) will go off-patent by 2015, providing a windfall for local companies.

India annually exports generic drugs worth over $11 billion including crucial anti-retrovirals to Africa to treat HIV patients.