Editor's note: This is the third in a five-part series on bird flu that will be featured throughout the week on FOXNews.com.

The nation's drug industry needs enticements to mass produce vaccines that could protect hundreds of thousands of Americans against a flu pandemic, many health experts say, but so far, legislation on the table to provide that is facing stiff criticism.

"I boil it down to justice, accountability and transparency," said Barbara Loe Fisher, president of the National Vaccine Information Center. "What you have is a situation where the drugs or vaccines would be rushed to market [and] there would be lowered standards of safety."

Drug companies have told the president and other officials that they need liability protection to mass produce pandemic vaccines, in case the vaccines they produce trigger negative side effects or injuries in people who take them. The companies also want to reduce the chances they might take big financial hits if vaccines they make aren't consumed within the year before they expire.

“Liability reform is a critically important part of this plan. It’s clear that the nation’s liability system is broken," Pharmaceutical Research and Manufacturers of America President Billy Tauzin said in a November statement in which he also offered support for the Bush administration's plan to give protections to companies that sell vaccine stockpiles to the government.

"While a new avian flu vaccine could provide an overwhelming benefit to society, no medicine is risk free. Companies should not be forced to balance the need of finding an effective vaccine for this potentially devastating pandemic against the certain knowledge that trial lawyers will pursue claims exploiting the inherent risks of vaccine development," Tauzin said.

Interest on the liability issue has grown since all eyes turned to a new strain of avian influenza, commonly known as "bird flu."

Scientists say bird flu could mutate into a virus that is transmissible from human to human. Currently no vaccine is commercially available for widespread use against the H5N1 flu strain, so governments are stockpiling antivirals like Tamiflu and Relenza. The United States currently has only enough of the antiviral to dispense doses to about 4.3 million people.

Click here for more information from the federal government about bird flu.

"There's a lot of latent capacity within the pharmaceutical industry to assist in the production of these products," William Winkenwerder Jr., assistant secretary of defense for health affairs, said recently during a Council on Foreign Relations event on pandemic influenza. "They have to see the money is there, and in some cases liability protections, before they leap into this," he said.

If the industry is asked by the government to produce vaccines in a scale large enough to guard the nation's nearly 297 million residents against a new flu strain, it desperately needs some liability protections, say supporters.

The industry also wants to to be reassured that it won't lose money because of overproduction.

During the 2002-2003 flu season, manufacturers lost about $120 million in unused vaccines. In response, during the 2004-2005 flu season, 12 million fewer vaccines were produced than previous years, and not everyone who wanted one was able to get a flu shot. Government and medical officials say they want to make sure that shortage doesn't happen again, particularly in the face of a virulent flu threat.

Senate Budget Committee Chairman Judd Gregg, R-N.H., and Sen. Richard Burr, R-N.C., this week called on the Securities and Exchange Commission to allow manufacturers to count as revenue pandemic flu vaccines and other biodefense products once they are placed into government stockpiles. Companies currently can't count those products as revenue until they're taken from the stockpile and distributed.

"We are concerned that SEC revenue recognition guidelines could serve as a disincentive to the establishment and maintenance of stockpiles for biodefense countermeasures, pandemic flu vaccines and products, medical products, and adult and childhood vaccines," Gregg said in a letter to SEC Chairman Christopher Cox.

On Monday, Health and Human Services Secretary Michael Leavitt said he has met with all of the vaccine manufacturers serving the United States — representatives from those companies also have met with President Bush — and in order to produce 300 million doses of vaccine within six months, they need three things: liability protection, a regulatory structure that allows manufacturing facilities to be built faster and certainty in the market so manufacturers know their products will be bought.

"The vaccine business has become a bad business and over the past 20 years, most of those who produce no longer do because there are better opportunities to deploy their capital. We have to fix that," Leavitt told state and local public health officials in Washington. "We don't have that capacity today — we don’t have that domestically at all... In a pandemic, that vaccine needs to be produced here, not in another country."

Pharma Making Viagra, Not Vaccines

In 1967, 26 companies made vaccines in the United States. Today, no more than four do. Medical experts and vaccine makers argue that the manufacturing capability in the United States to produce effective vaccines has been greatly diminished by the fear of liability lawsuits.

"The infrastructure has crumbled," said Dr. Paul Offit, chief of the division of infectious diseases at the Children's Hospital of Philadelphia. "I think the Bush administration has recognized that, [and] to their credit has said we need to build this infrastructure up again."

In the early 1980s, reports of harmful side effects from the diphtheria, tetanus and pertussis (DTP) vaccines posed major liability concerns for vaccine companies and health care providers. Parents began filing lawsuits after their children were injured by or didn't respond well to shots. Vaccination rates among children began to fall and many vaccine developers left the market, creating significant vaccine shortages.

In 1988, Congress established the National Vaccine Injury Compensation Program to stabilize vaccine costs and ensure an adequate supply of vaccines and an effective injury claim system. It also provides some liability protection to both vaccine companies and health care providers.

But FOX News medical expert Dr. Steven Garner of New York Methodist Hospital said fear of litigation still has drug companies manufacturing products other than vaccines.

"Right now, we have an antiquated system that takes one year" to make a vaccine once a pandemic strain is identified, and another year to inoculate the population, Garner said. "We have to give incentives to the drug companies … we need to say, 'We're going to put a lot of money into that, whoever comes up with a vaccine first, is going to get $1 billion, let's say … and we need to reduce litigation … people have dedicated their resources to other pills."

In announcing on Nov. 1 his national strategy to protect the nation against pandemic flu, Bush said granting vaccine manufacturers protection from civil lawsuits would go a long way toward spurring the development of medicinal weapons needed to fight any pandemic.

"In the past three decades, the number of vaccine manufacturers in America has plummeted, as the industry has been flooded with lawsuits," Bush said.

'Secret' Drug Agency Debated

Burr, chairman of the Senate Health, Education, Labor and Pensions Subcommittee on Bioterrorism and Public Health Preparedness, last month introduced a bill that would, among other things, provide liability protection for those manufacturers producing medicine for government-ordered stockpiles. Under the Biodefense and Pandemic Vaccine and Drug Development Act of 2005, companies would not be held liable if an individual used the medicine for a purpose other than what it was intended.

The bill also would establish the Biomedical Advanced Research and Development Agency as a single point of authority within the federal government for the advanced research and development of some drugs or vaccines.

"The protections for liability are very focused and limited to just drugs and vaccines that would be developed to fight pandemics, epidemics — whether those be naturally occurring, accidental or bioterrorism attacks," Burr spokesman Doug Heye told FOXNews.com. "We're talking about drugs the government would be purchasing."

The bill also gives liability protection to universities that produce stockpiled medicines.

"They do important work and wherever the next solution to the next challenge comes from, we want to make sure we're able to take advantage of that," Heye said. "If enough incentives were in place, we wouldn't be having this debate right now."

Some Senate Republicans, headed by Senate Majority Leader Bill Frist of Tennessee, are trying to keep liability protection language attached to the fiscal 2006 Defense Appropriations bill. Senate Democrats, however, are trying to get conferees to drop the language.

Lawmakers like Democratic Sen. Edward Kennedy of Massachusetts have said draft protections outlined in the bill are "another special favor for the drug companies … to absolve the pharmaceutical industry of any responsibility to patients injured by dangerous drugs or vaccines, with no compensation for those who are harmed."

Such protections are also being opposed by groups such as the Association of Trial Lawyers of America and the Center for Justice and Democracy. ATLA notes that "companies are investing in the vaccine market at a rapid pace even without the special protections Bush is advocating," while CJD claims the bill would "wipe out" both the regulatory and legal safeguards against certain unsafe vaccines, drugs and devices, "leaving the industry completely off the hook for hurting American citizens."

If the Burr bill is passed, Fisher, of the vaccine information center, said the government could order residents to be vaccinated for any disease the Health and Human Services secretary deemed a potential threat. And if the research and development agency is not subject to citizen review and it makes decisions regarding vaccines in secret, she argued drugs could be rushed to the market and forced on a population, all of which may not respond well to them.

"What we need to do is be able to set up a system where we carefully make these drugs and vaccines, where there are standards that are kept, where there is an ability for the public to have some sort of oversight," Fisher said. "The last thing we want is a vaccine produced so quickly and so carelessly that it is going to be harming a number of people and that in itself is going to be making a problem."

Conversely, the government needs to realize that making vaccines simply isn't profitable, experts in medical and science corners argue, nor is it a process free of red tape.

"We basically have to beg these companies or bribe these companies to make these vaccines," said Steven Salzberg, director of the Center for Bioinformatics and Computational Biology at the University of Maryland at College Park. "The government is very reluctant to admit this ... if it's not a profitable drug or vaccine but it's an important public health problem, the only solution is that the government just makes it. Industry is going to do things that are profitable; vaccines are not profitable."

Respond to the Writer

Click back on FOXNews.com on Friday to read Part IV of the series, which focuses on new cell-culture technology being used to make the next generation of flu vaccines.

Click here to read Part I, "Bird Flu: All You Ever Wanted to Know About the Coming Pandemic."

Click here to read Part II, "Do Antivirals Give Us a False Sense of Comfort Against Pandemic Flu?"