India's Supreme Court has rejected a plea by Novartis to patent an updated version of its cancer drug, Glivec.
The Swiss drugmaker had been denied a patent by Indian authorities on the grounds that the new version was only slightly different from the old.
The decision means generic drugmakers can continue to sell copies of the drug at a lower price in India, one of the fastest growing pharmaceutical markets.
Novartis said the decision "discourages future innovation in India".
"This ruling is a setback for patients that will hinder medical progress for diseases without effective treatment options," said Ranjit Shahani, vice-chairman and managing director of Novartis India.
Glivec, which is used to treat chronic myeloid leukaemia and other cancers, costs about $2,600 (£1,710) a month.
The generic equivalent is currently available in India for just $175.
There were concerns that, if granted, a patent could threaten access to cheap generic versions of life-saving drugs in poorer countries.
"This will go a long way in providing affordable medicine for the poor," said Anand Grover, a lawyer representing Cancer Patients Aid Association, adding that he was "ecstatic with the ruling".
Novartis applied for a patent in 2006 for its new version of the drug, arguing that it was easier to absorb and therefore qualified for a fresh patent.
However, the Indian patent authority rejected the application based on a law aimed at preventing companies from getting fresh patents by making only minor changes to existing drugs, a practice known as "evergreening".
Officials also turned down a subsequent appeal by the company three years later.
On Monday, India's Supreme court rejected the firm's appeal to get patent protection for the drug.
The AFP news agency quoted the court as saying that the updated drug "did not satisfy the test of novelty or inventiveness" as required by the law.
Setting a precedent?
Patents usually protect the companies for 20 years of exclusive sales. After that, it is open to other firms who can make cheaper copies of the original drug.
Once the protection expires, the first company to challenge the patent gets an exclusive right to sell the copy for 180 days.
After 180 days, more companies can sell the generic versions, potentially resulting in a further price drop.
It is estimated that drugs with combined annual sales of $150bn will go off-patent by 2015.
India's generic drug makers are among the biggest in the world and many expect them to benefit from these patents expiring in the coming years.
However, there have been concerns that if firms are granted patents for updated versions of their drugs, it may not only deny access to cheaper medicines to poor people, but also hurt the makers of generic drugs.
Pratibha Singh, a lawyer for the Indian generic drug manufacturer Cipla, said the ruling had set a precedent that would prevent international pharmaceutical companies from obtaining fresh patents in India on updated versions of existing drugs.
"Patents will be given only for genuine inventions, and repetitive patents will not be given for minor tweaks to an existing drug,'' she said.
Shares of Novartis India fell almost 5% on the Bombay Stock Exchange, while stocks of generic drugmakers such as Cipla and Natco rose after the judgement.