You're somewhat wrong about knockoffs being sustainable -- generally it is sustainable, it just means that a universe of knockoffs isn't going to see new drugs. This means that pharma becomes a low-margin industry, but it's sustainable.
(Exceptions are for things like antibiotics and antivirals, which lose effectiveness over time as the wild population adapts; most other pharma products remain as effective as they ever were.)
Given the economic conditions in the third world -- india being a perfect example -- it's not surprising that india has taken the strategy it's taken; until the crippling disease-riddled poverty is taken care of the smart thing to do is to let the private sector solve the problems it can by taking a soft line on international pharma patents.
India could negotiate bulk purchases of pharma but clearly has decided it's not in its interest to do so; it's a large enough entity to get its own way and has done its own cost-benefit analyses that tip the balance in this favor; perhaps things wouldn't work out if everyone did it but then everyone isn't going to do it, anyways.
As far as Gilead goes: I can assure you that Gilead has hired mckinsey, game-theory phds, and many other eggheads to arrive at a pricing strategy in each legal region by carefully examining:
- expected purchase amount @ each pricepoint
- likelihood of country going rogue @ each pricepoint
...and that prices are set to accommodate Gilead's particular risk preference (where risk == "chance of driving a country to go rogue").