This is a partial transcript of "Special Report With Brit Hume," Oct. 19, 2004, that has been edited for clarity.

Watch "Special Report With Brit Hume" weeknights at 6 p.m. ET!

(BEGIN VIDEO CLIP)

JOHN KERRY, DEMOCRATIC PRESIDENTIAL NOMINEE: This administration was warned about the shortage of flu vaccines three years ago, and they didn't act.

PRESIDENT BUSH: We have millions of vaccine doses on hand for the most vulnerable Americans, and millions more will be shipped in the coming weeks.

(END VIDEO CLIP)

BRIT HUME, HOST: The shortage of flu vaccine this year is unquestionably now a campaign issue, raising the question of how this country could get into this predicament?

For answers, we turn to Dr. Anthony Fauci (search) from the National Institute of Allergy and Infectious Diseases (search).

Doctor, welcome.

DR. ANTHONY FAUCI, NAT'L. INSTIT. OF HEALTH: Good to be here.

The United States ended up at a situation where it basically had two companies that were providers of this vaccine each year.

Right.

HUME: First of all, how did that happen?

FAUCI: Well, you know, strange as it seems, we're lucky we have two, because the vaccine industry has been in a very precarious situation for many, many years...

HUME: Why is that?

FAUCI: ... getting worse and worse.

There is virtually little incentive for a company who decides, should I make a blockbuster drug, where I can make billions and people use it all year round every day? Or should I get into the vaccine industry, which has a very low profit margin?

HUME: Why is that?

FAUCI: Well, the reason is because people expect that vaccines to be almost an entitlement, and they'll pay $1,600 a year for a lipid-lowering drug, like Lipitor (search). But for vaccines they expect, perhaps appropriately, that it will be inexpensive, seven, 10, 15, $20 at the most. The other issue is that...

HUME: So in other words, the profit margins are low because you can't— people won't pay that much for them?

FAUCI: Well, it's perceived, since it's given to people who are otherwise normal, that it's something that isn't necessary. So it's almost something that isn't right on the front burner of what you need, like a medication for being sick. The other thing that's very important is that the market is very unpredictable. You have a very confined season in which you need to sell that if you are the vaccine company.

HUME: But the stuff doesn't store, correct?

FAUCI: It doesn't store, particularly influenza...

HUME: Last year's vaccine is not good this year?

FAUCI: ... it just changes a bit each year that you try to make a new one. And for example, there are many examples in previous years where a company would make X number of millions of doses and sell only 60 percent or 70 percent of it, which means they have to eat the costs of the ones that are not using.

HUME: And in all likelihood, therefore, take a loss on it.

FAUCI: Exact — oh, without a doubt. In fact, one of the companies that was trying a couple of years that are get into the business made four to five million doses the first year, and only 300,000 and took a great loss. The other thing that's important is that the process of making a vaccine, which is a biologic, it's much more complicated and prone to high risk. You get a drug. You put it into the factory. Once you get that going, you're in good shape.

HUME: You're talking about a drug like Vioxx (search) or Celebrex (search).

FAUCI: Vioxx, the whole — all the ones that people use continuously, blood pressure drugs, lipid-lowering drugs. When you're dealing with a vaccine, it's a biologic and very, very difficult...

HUME: And therefore perishable.

FAUCI: Perishable, but also, the process is a long process that's seasonal. So if you start it in January to be available for the fall season, if you get a glitch along the way, you're lost for the season. Whereas, if you have a drug that's used year round, you may have a delay for a month or so. And then you could keep selling.

HUME: So you — so you tell me why this isn't a very good business to be in.

FAUCI: It's not a good business to be in.

HUME: All right. But why is it that this country this year has a big shortage and other countries are not complaining of similar shortages?

FAUCI: Well, because first of all, we order and require many, many more millions of doses than most companies.

HUME: Why do we do that?

FAUCI: Well, the reason is we are trying over the last few years...

HUME: When you say we, are you talking of the Americans or the government?

FAUCI: The United States of America, now with the government, trying to get more and more people vaccinated, this year we ordered the most vaccine that we would ever have given. Last year, was the most over the previous years. So over the past three or four years, there's been an attempt to get more and more people vaccinated.

HUME: Why do we do that?

FAUCI: We're doing it because of the fact that influenza is a serious disease.

HUME: Right, I know. But it's a serious disease for people who get in Germany and Britain, and other parts of the world. Is it not?

FAUCI: Exactly. And I'd have to say...

HUME: And why do they have fewer takers?

FAUCI: Well, they have fewer takers because we're taking it much more seriously than many countries, with regard to the proportion of people that are getting vaccinated and that we recommend.

HUME: What role does the FDA have in this?

FAUCI: Well, the FDA is the regulatory agency.

HUME: I understand that.

FAUCI: So they're required to make sure that a vaccine is safe and effective.

HUME: Right. Are our regulatory standards higher than those that apply in places, like Europe, for example?

FAUCI: It's generally considered the gold standard globally. I mean if...

HUME: Ours?

FAUCI: Ours. If the FDA gets criticized, it's for being too strict.

HUME: But that adds another layer of complication for the manufacturer, does it not?

FAUCI: Precisely. They're asking for some regulatory relief. And we have to balance that safety for the American people with not being too stringent.

HUME: So am I correct in thinking that in the United States of America, more people take flu vaccine...

FAUCI: Than in other countries.

HUME: And it has to be pure or meet higher standards than in other countries?

FAUCI: At least as high, possibly higher.

HUME: And it's kind of a commodity product. Once it's produced, you can't charge very much for it to begin with.

FAUCI: Right.

HUME: So it sounds as if...

FAUCI: It's a very poor incentive for companies to get involved. A few years ago, there were five companies making drugs licensed to making vaccines in this country. This year, there are two. So you asked a very appropriate question of me. Why only two? And I say we're lucky we have two, because of the disincentive of these companies to get involved.

HUME: Well, when you say, though, that the prices are too low, wouldn't it be possible if you let the market deal with this, for the price to rise in a situation to take care of itself in that particular market?

FAUCI: Yes. But it just doesn't happen that way.

HUME: Doesn't happen that way in part, because everybody thinks they ought to have a flu vaccine cheap. Correct?

FAUCI: Exactly.

HUME: The government tries to provide that?

FAUCI: Well, see the government tries to provide only about 10 percent of all of the vaccines as in the public sector. It's really a market-driven; about 90 percent of the vaccines that are distributed are actually purchased in the private sector.

HUME: All right. Now, the president is saying, look, if you don't really need a flu shot this year, don't get one. That means me. I'm in reasonably good health, only 61 years old; I would not be a priority to get it.

FAUCI: No. Exactly. The CDC has come out with what we call high- risk category people, over 65...

HUME: Children.

FAUCI: ... children from six months to 23 months, and children and adults who are of chronic diseases.

HUME: So, how likely am I might to get sick because of not having this vaccine?

FAUCI: Well, as a healthy, relatively young person, the chances of your getting flu in the United States, 10 — up to 20 percent of people get the flu where there are 36,000 deaths, the vast, vast majority, greater than 90 percent of those, are among elderly people greater than 65 years old. So the chances of you're getting the flu if you're not vaccinated are reasonable. The chances of you're getting seriously ill are very, very small.

HUME: So I might get sick, but I probably won't die. That's comforting.

(LAUGHTER)

HUME: Thank you very much.

Content and Programming Copyright 2004 Fox News Network, L.L.C. ALL RIGHTS RESERVED. Transcription Copyright 2004 eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.), which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Fox News Network, L.L.C.'s and eMediaMillWorks, Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.