Right now, it's arguable that government ground rules give pharmaceutical companies too little incentive to innovate. If FDA regs forced them to demonstrate more than just superiority to a sugar pill, drug company incentives might be aligned a little more strongly toward finding genuinely effective new therapies instead of yet another statin or ED pill or a slightly different heartburn formulation.
Or maybe not. It's an argument worth having. But the current system is by no means the free market juggernaut conservatives like to pretend it is. Changing the ground rules might very well increase innovation, not stifle it.