I worked in the drug R&D business for over 8 years. I still follow the industry closely. Some things always get lost in these discussions. First, manufacturing an existing drug is absurdly cheap. Modern industrial chemistry ensures this for all small molecule drugs (note that this is not the same case for the "biologics" which are often fiendishly difficult to make). Almost all the cost in a drug is the manufacturer recouping R&D costs. These costs have been spiraling out of control for 10 years. They are astronomical. A recent Forbes analysis pegs the cost of a new drug with failures of drugs in development folded in anywhere from $3 billion to $12 billion depending on the manufacturer (excellent context and discussion here: http://pipeline.corante.com/archives/2012/02/10/the_terrifyi...).

You don't need to be an industry expert to grok that those numbers are wildly unsustainable. It is not possible to keep spending the amount companies spend to make new drugs. In the past, companies would inflate the price in the USA to make up for reduced prices elsewhere. But with all the recent healthcare reform in the USA, that strategy is ending.

To add insult to injury, the vast majority of the most commonly used drugs will lose patent protection in the next couple of years. In the industry they call this the patent cliff. There will not be enough new drugs to offset all the ones that go generic.

This move by India is a symptom of the wider drug industry problems. There will be more of these kinds of moves in the future. The industry has been searching for ways to more effectively make drugs and have it not be so expensive. But so far they have been striking out for 10 years running. The current strategy is to lay off most of their r&d workforce and offshore and outsource this part of the business.

Somewhere out there, a business model is waiting to be found. Whoever cracks that nut and becomes the Southwest of the drug industry is going to make a fortune.