How hard is the generic drug business? This five-year chart for Andrx (NASDAQ:ADRX) shows a particularly brutal time for shareholders.

The stock was the largest percentage loser on the Nasdaq this morning -- and was setting a 52-week low -- on news that the Florida district office of the Food and Drug Administration has given the company Official Action Indicated status. The immediate result is that Andrx's abbreviated new drug applications are now on hold for FDA approval. Future actions (to name a few) might include product recalls, fines, and total or partial suspension of production or distribution, or both.

When Andrx disclosed manufacturing problems in its 10-Q filing with the Securities and Exchange Commission on Aug. 4, it said any noncompliance with current good manufacturing practices or the corrective action plan "could have a material adverse effect on our financial condition and results of operations." Well, the company has moved from the "could have" stage into the deep water at the end of the pool.

At this point, it's unclear what will happen next. Andrx disclosed that it has answered the FDA's "inspectional observation" and submitted a corrective action plan.

When the company announced second-quarter results at the end of July, revenues and earnings were up compared with the year-ago quarter. Andrx was clearly focused on commercializing difficult-to-formulate products, particularly controlled-release contraceptives; only a few generic companies have the proven ability to successfully develop these products. All that promise is now taking a back seat to the hard realities of drug manufacturing.

Speculators will see a drug company with $265 million in cash and no debt that is selling for 12 times projected 2006 earnings. That's awfully cheap if the FDA problems can be resolved quickly and without material impact. But that's a big if, and currently it's difficult at best to determine whether it's reasonable to follow company guidance. In a worst-case scenario, Andrx may have to recall products or suspend production, or both.

Until the muddy waters clear, conservative investors seeking generic drug investments would be better off looking for value among competitors Barr Pharmaceuticals (NYSE:BRL), Mylan (NYSE:MYL), and Watson Pharmaceuticals (NYSE:WPI) -- provided it's there.

Fool contributor W.D. Crotty does not own shares in any of the companies mentioned. Click here to see T he Motley Fool's disclosure policy.