Hugely popular with Americans seeking cheap medications, Algodones is a Mexican hamlet with 10 streets and about 20 drug stores across the border from Yuma, Arizona.
Algodones advertises one bar, one church and an estimated 250 doctors, dentists and opticians, almost all of whom cater to Americans who come for cheap drugs and health services.
The drugstores often also sell alcohol, and names like "Liqui's Pharmacy and Liquor" are common.
The US Food and Drug Administration issued an alert on 30 July, cautioning that at least one pharmacy has sold useless tablets labeled as Zocor, a cholesterol drug, to an American citizen in Algodones.
Ernesto Enriquez Rubio, the head of the Mexican government's drug watchdog agency, said authorities were investigating the origin of the fake medicine, noting "no laboratory is producing this legally in Mexico".
"It was a total fraud," he said. "The medicine had no active ingredient whatsoever".
It was unclear whether the problem was widespread. There have been isolated reports of fake medicines in the past, but none large enough to halt the flow of Americans seeking cheaper health care in Mexico, estimated at 15,000 crossing daily in the busy winter months.
Algodones' wall-to-wall pharmacies serve a largely elderly American clientele with a narrow range of drugs – the top-selling arthritis, cholesterol or heart medications.
But getting a sugar pill instead of an anti-spasm medication is not a laughing matter, said Hal Zanenberg, director of marketing of Westward Pharmaceutical Inc, the maker of Carisoprodol, noting "if you don’t have the active ingredient, its not going to relieve the spasm".
Industry officials say there is a long-standing problem with drugs of dubious effectiveness being sold at border pharmacies.
Pharmacists in Algodones denied selling counterfeit medicine in their stores.
Local business people fear the alert could hurt business in Algodones, which is so dependent on sales of a few top-selling medications that one local pharmacy has reportedly been nicknamed "Viagraland" by locals.