Indian drugmakers are fleeing a regulatory morass at home and moving some research and development to Europe and the United States as they try to boost margins by producing high-value drugs.
India's $15 billion a year pharma industry, the world's largest source of cheap generics, is already reeling from a string of drug recalls and quality control issues which have called into question the regulator's oversight.
Now, companies like Piramal Enterprises Ltd, Sun Pharmaceutical Industries Ltd and Lupin Ltd are investing millions of dollars and placing their future growth in foreign regulators' hands, as they seek to add more complex drugs to their product lines.
"We have lost what is called the India advantage," said Swati Piramal, vice-chair of Mumbai-based Piramal Enterprises which last year moved some clinical trials for new drugs abroad.
"The India advantage was saying we can research molecules ... and finish the clinical trials and the cost would be one-tenth of the West," she said.
"Now, we have to acquire small groups of highly specialised people who can work on a particular type of product and know exactly how to do it. That's the new alternative - to really invest in R&D abroad," she added.
Indian drugmakers rely on cheap generics for the bulk of their revenue, but like their global peers, they are focusing more on niche markets such as ophthalmology and oral contraceptives, and difficult-to-make products such as inhalers and injectables in a bid to achieve higher profit margins.
Some companies are also making copies of bio-drugs called biosimilars, the latest trend in the global pharma industry which requires intensive R&D and a regulator with experience in handling such sophisticated medicines.
Like its peers, Piramal does not disclose how much it spends on R&D abroad. Industry research firm CRISIL, however, forecast R&D spending by India's top 20 pharma firms to rise to about 6.5 percent of total revenue by 2018 from about 5.8 percent now.
Company executives say the higher cost of moving abroad will be partly offset by the ability to bring high-value drugs to their main markets in the United States and Europe more quickly: it takes nearly a year to get clinical trials approved in India compared to about 28 days in the United States.
These high-value drugs hold so much potential that companies are willing to put up with long delays before they can launch them at home, a fast-growing market for more expensive medicines, as India's regulator