Under the ruling, Natco will pay Bayer a 6% royalty on net sales of the drug and sell the medicine for Rs. 8,800 ($175) a month.
The sum represents a 97% reduction on the Rs. 280,000 price that Bayer charges in India for a monthly dose of the drug, which is used to extend the lives of patients suffering from advanced kidney and liver cancers.
The ruling is likely to promp other companies to opt for compulsory licence, analysts said.
"The approval could encourage other Indian pharma firms to go for compulsory licenses," Sapna Jhawar, pharma analyst, Sharekhan.
However, chances of approval will depend on a case-to-case basis. The company will have convince patent authority on two counts - first that the drug is strongly needed in the country and second that the company will manufacture the drug in the most cost effective manner," she added.