The ruling means that Natco Pharma can continue to manufacture and sell this product, P Bhaskar Narayana, director and CFO at Natco Pharma told NDTV. Natco has been manufacturing the product since April 2012.
Shares in Natco Pharma surged as much as 12 per cent in early trade on Tuesday. The stock traded 5 per cent higher at Rs 446.50 as of 09.25 a.m.
Nexavar accounted for Rs 14 crore of sales between April and December 2012, Mr Narayana added.
Bayer, Germany's largest drugmaker, said it would continue to fight to overturn the decision, which it said weakened the international patent system and endangered pharmaceutical research.
Last year, the patents office allowed Natco Pharma to sell generic Nexavar at Rs 8,800 for a month's dose -- a fraction of Bayer's price of Rs 2.80 lakh. Bayer challenged this decision to grant Natco a compulsory licence at the IPAB in Chennai.
On Monday the board dismissed the petition, although it did order Natco Pharma to pay a royalty of 7 per cent on sales of generic Nexavar to Bayer, an increase from the 6 per cent royalty that had earlier been set.
The ruling paves the way for the issue of more so-called compulsory licences as governments, particularly in emerging markets such as China and Thailand, battle to bring down healthcare costs and provide access to affordable drugs to treat diseases such as cancer, HIV-AIDS and hepatitis.
Under a global Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, countries can issue compulsory licences on certain drugs that are deemed unaffordable to a large section of their populations.
(With inputs from Reuters)