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When it comes to generics, though, all consumers benefit financially. That's why the FTC has launched a sweeping review of companies to determine if they've tried to suppress these knock-offs. In recent weeks the FTC has sent out 75 court-enforceable demands for information from companies. And in a little over a year, the agency has filed three cases against drug giants suspected of paying off the makers of generics to keep their products off the market. To settle the suits, two companies agreed not to delay the entry of generics in the future. The third, Schering-Plough, is charged with paying $90 million to two competitors to postpone introducing generic versions of K-Dur, a heart medication. All three drugmakers deny wrongdoing.

Meanwhile, a Senate bill sponsored by Arizona Republican John McCain and New York Democrat Charles Schumer would plug loopholes in a 1984 law that lets name-brand companies obtain frivolous 11th-hour patents when their original protection is about to expire. How frivolous? Consider the case of Bristol-Myers Squibb, which filed a new patent on its antianxiety drug BuSpar last fall even as a generic competitor was loading cheaper pills onto its trucks for shipment. The patent application was a slick move because it did not apply to BuSpar itself but rather to a chemical by-product that appears in the body as the drug is digested. A federal judge eventually threw out the extension request but not before the company had rung up an extra $57 million in sales. Asks John Balto, a former FTC official who has been involved in some of the recent probes: "Has the law encouraged name-brand firms to invest in legions of attorneys to create unwarranted regulatory obstacles rather than creating new and better drugs for consumers?"

Naturally, the drug companies answer no. They point to the quantum improvements the industry continues to make in prescription products. Just last week, for example, the FDA approved a powerful new anticancer drug called Gleevec, which could cost patients more than $2,000 a month when it hits the market this week (see MEDICINE). Says Robert Blendon, a professor of health policy at the Harvard School of Public Health: "We're shifting to new types of drugs that could be a lot better than the old ones."

And they are expensive to cultivate. Last year the pharmaceutical industry spent more than $26 billion to develop new potions, according to the Pharmaceutical Research and Manufacturers of America, a Washington lobby group. While drugmakers have traditionally been among the most profitable U.S. companies, they plow 20% of their sales into research and development, in contrast to less than 4% for the average U.S. manufacturer. "If you've got a life-threatening disease, your best hope is the American pharmaceutical industry," says Alan Holmer, president of the lobby.

William Nixon, head of the Generic Pharmaceutical Association, responds that pressure from knock-offs actually encourages innovation by the name-brand firms. "To remain competitive in the marketplace, they have to go out and do cutting-edge R. and D.," he says. A 1999 Yale study concluded that consumers benefit financially from the increased availability of generic drugs "without any appreciable innovative 'losses' resulting from reduced research and development."