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Let's admit it: many of us have congratulated ourselves, if a bit guiltily, for buying a counterfeit branded handbag or DVD, pleased to have paid so little for something that was almost as good as the real thing. Most consumers would not knowingly apply the same logic to the medicine they take—who wants imitation Viagra? But people around the world may be unwittingly buying fake pharmaceuticals all the same. A raid of a ramshackle warehouse in southern China's Guangdong province last month turned up plenty of evidence that brand-name drugs are not always what they seem. In the raid, Chinese police working with investigators for U.S. drug manufacturer Eli Lilly discovered 40,000 little blue "Viagra" pills, knockoffs of Pfizer's erectile-dysfunction treatment, sealed in plastic bags and ready for shipment, according to Eli Lilly officials. Also seized were 750,000 tablets that were imitations of sexual-dysfunction drugs Cialis and Levitra, the former marketed by Eli Lilly and the latter by Bayer and GlaxoSmithKline.

Eli Lilly officials say it will be weeks before they can analyze what, exactly, is in the seized pills. They are certain about one thing: it isn't medicine. Although phony prescription and over-the-counter drugs often look like the real things, right down to the blister packs and corporate logos on the packaging, they may have few—if any—active ingredients and might contain toxic substances. These days, drug companies and international health organization officials are alarmed by the health threat posed by the increasing availability of fake drugs pouring out of illegal factories, mostly in China and India. According to Dr. Harvey Bale Jr., director general of the Geneva-based International Federation of Pharmaceutical Manufacturers Associations (IFPMA), trafficking in counterfeit medicines is a $3 billion-$6 billion industry—and as the price of genuine drugs continues to climb, some say the problem is bound to increase, too. "It's absolutely way worse than reported," says Joseph Simone, a partner at law firm Baker & McKenzie in Hong Kong and vice chairman of China's Quality Brands Protection Committee (QBPC), an anticounterfeiting business group.

In the past, fake drugs received relatively little attention, partly because the worst abuses were confined to developing countries and partly because drug companies wouldn't talk about the problem for fear of undermining trust in their brands. But recent high-profile incidents are changing that attitude of reticence. In Hong Kong, for example, knockoff versions of the widely used painkiller Panadol were discovered in stores in September 2003, a worrying development in a city with modern health regulations and consumer safeguards. In countries where there is little policing of the pharmaceutical trade, the chances of walking into a drugstore and being sold a fake are surprisingly high. Consumers living in Southeast Asia face a 1 in 10 chance of buying a counterfeit, cautions the IFPMA. The situation is worse in mainland China, where consumers have a fifty-fifty chance of buying fake versions of some types of over-the-counter medications. And for those seeking top-selling (and hence much copied) prescription drugs, fakes may be outnumbering the real products by as much as 8 to 1, according to the IFPMA. "There are not any countries that are immune to [counterfeit drugs]," says Dr. Budiono Santoso, regional adviser for pharmaceuticals at the World Health Organization's (WHO) Manila office.

Fake drugs are a consumer rip-off. But are they dangerous, too? According to Santoso, 60% consist mainly of benign ingredients such as rice powder or talcum powder. They won't harm people, but they won't cure them either—and that can sometimes be just as deadly. In 1995, 2,500 Nigerians died during a meningitis outbreak after they were inoculated with fake vaccines believed to have come from India. In a similar event in China last month, hundreds of parents unknowingly fed their infants bogus baby formula made of starch and sugar. At least 13 of the children died, according to press reports. And because counterfeits are made in clandestine and often unsanitary factories, they might be adulterated with toxic ingredients. According to Bale of the IFPMA, 30 Indians died in 1998 after they ingested cough syrup from China that was laden with antifreeze.

Cracking down on counterfeiters isn't easy. In industrialized countries, illegal pill-peddlers prefer selling imitations of "lifestyle drugs" that treat hair loss, obesity and sexual dysfunction—products for which there is high demand. But the embarrassing nature of the conditions the medications are designed to address makes policing more difficult. Many consumers prefer to bypass their doctors and buy prescription drugs such as Viagra through discreet (and often unregulated) distribution channels such as the Internet and unlicensed pharmacies. Few complain when they realize they've been had. "It's too embarrassing to admit you use Viagra and say it doesn't work," says Peter Lowe, director of the International Chamber of Commerce's Counterfeiting Intelligence Bureau in London.

In developing countries, counterfeiters tend to target common prescription drugs, including the antibiotic amoxicillin and the painkiller acetaminophen. Many knockoffs are easy to spot because of their amateurish packaging. WHO investigators recently found a fake antimalaria drug circulating in Cambodia called Brainy, a nonexistent brand. Counterfeiters apparently planned to fool unsophisticated buyers by printing the packaging in the Thai language—Thai products are respected in Cambodia. Other fakes, however, come in packages that are nearly indistinguishable from the real products. "Even if there is a new security feature, such as a hologram, the counterfeiters can reproduce it in one or two weeks," says Samuel Porteous, managing director for greater China at Kroll, an international risk consultancy.

Drugmakers are exploring new technologies such as digital watermarks and computerized ID chips to thwart counterfeiting. But health officials say consumers need to be aware of the problem and protect themselves by carefully scrutinizing the drugs they buy. Meanwhile, attempts to choke supplies off at the source are increasing, at least in mainland China. In Shenzhen, a booming manufacturing city located just across the border from Hong Kong, the Municipal Drug Administration investigated 1,956 cases and shut down 38 underground producers and sellers between January and September of 2003. That's up from the 226 cases and 9 wholesalers busted in the whole of 2002. Pfizer recently signed an agreement with the city of Shanghai calling for cooperation between industry and government in the fight against fake drugs, the first such agreement ever, says John Theriault, head of the pharmaceutical giant's global security division.

But investigators, industry executives and government agents complain there are still not enough resources to contain drug pirates and that light penalties for those convicted of counterfeiting are no deterrent. Recently, the owner of a Beijing-based company arrested for selling fake Viagra and exporting it to the U.S. was sentenced to one year in prison and a $12,000 fine. "The [Chinese] government talks of reform, but we need more," says the QBPC's Simone. "Seize and fine isn't enough." A consumer who buys a fake Swiss watch might lose a little time. Someone buying a fake drug might lose all the time he has. "Counterfeiters," says Simone, "get away with murder."

• Carlye Adler
• Counterfeit drugs are big business in Asia. Here's what you need to know to ensure you're not buying bad medicine