When the Senate majority leader gives a major speech calling for the equivalent of a “Manhattan Project for the 21st century,” our ears should perk up. A high-ranking government official proposing significant initiatives can often be good news for investors.

Senator Frist is calling for an all-out attack on infectious diseases, bioterrorism, and in particular the avian flu. This is not the usual scaremongering so beloved by attention-seeking politicians. The scientific and health care communities are convinced a potentially deadly flu pandemic is headed our way. There are various virulent strains of disease, principally the avian flu (H5N1), which are mutating, becoming more resistant to medication, and apparently approaching the point where they will travel from person to person more readily.

Experts in the field recall the Spanish flu of 1918, which claimed 20 million lives worldwide. More recent outbreaks have been milder, but also costly. According to the National Institutes of Health, “The last pandemic swept the globe in 1968; most public health experts believe the world is overdue for another one.”

This is not a minor concern. Foreign Affairs devoted much of its most recent issue to the possibility of a pandemic. The articles chill the blood. The subject is complex, but suffice it to say that the avian flu, if it develops human transference, could turn out to be the most deadly attack of its kind ever seen. Many scientists suggest that the death toll from an H5N1 pandemic could reach hundreds of millions worldwide.

There are two major approaches to creating readiness, both of which could benefit the pharmaceutical industry. First, governments around the world need to acquire, and are ordering, stockpiles of anti-flu medication, a subject I will address in an upcoming column.

Second, most governments are trying to line up vaccine supplies that could cover a larger-than-normal portion of the population. Since the current flu threat contains strains that humans have never encountered, people of all ages will be vulnerable to the disease, should it develop. In 1918, young people were worst hit by the Spanish flu. Older people had developed some resistance to the disease from surviving a similar earlier strain.

America now lags in its stockpiling of vaccines. The problems that have beset vaccine producers in the past two decades are well known. The American government suffered a major embarrassment in the 1970s when it ordered a massive amount of vaccine to prevent swine flu and immunized producers against liability concerns. The disease never developed, and the government was sued for millions by people who suffered serious side effects from the inoculations.

The number of companies in the vaccine business has shrunk to very few, but there are a couple that specialize in the area and could benefit from stepped-up spending. (For more conservative investors, there are also large companies such as GlaxoSmithKline and Sanofi-Aventis.)

The head of Outer Islands Capital and a well-regarded appraiser of health care companies, David MacCallum, considers ID Biomedical of interest. IDBE is a Canadian company that is producing a new vaccine called Fluviral. The company currently has 75% of the Canadian market, and has arranged to market the product in America once it has FDA approval.

The company is small, and has only recently moved from an R&D operation to shipping any significant product. However, management projects the possibility of selling as much as $2.3 billion in vaccines in the next eight flu seasons. If a crisis required more rapid vaccine production, IDBE could be in the forefront.

This potential has not gone unnoticed. Numerous analysts follow the stock today, but few from the large investment banks do. Researchers are mostly positive on the shares, despite projections of losses next year. The five-year growth rate is pegged by analysts at upwards of 30%, and that’s without a flu crisis. The company has a 10-year mandate from the Canadian government to provide flu vaccines in case of a pandemic.

The world’s fifth-largest vaccine producer is Chiron, based in California. This company is not as “pure” a play as IDBE, since only about 30% of revenue comes from vaccines. The company is also in the doghouse because of quality problems at a major manufacturing facility in Britain last year and other management issues. The British plant was shut down for three months. As a result, the company failed to deliver expected vaccine shipments to America.

The stock, which traded in the mid-50s in late 2003, traded as low as $29 earlier this year, and gets mixed reviews from analysts. One supporter of the company is Eric Schmidt at S.G. Cowen Securities. Mr. Schmidt cites the positive momentum in the company’s operations excluding the newly acquired British company PowderJect, the source of the vaccine issues. Mr. Schmidt acknowledges management turnover at Chiron has been higher than the norm, but he is optimistic that the underlying strength of the company will move the stock higher, targeting a price in the high 40s.

Analysts are all over the lot on Chiron, with estimates for next year ranging from $1.58 to $2.74. That’s the kind of uncertainty that could spell opportunity.

The prospects of these companies should improve with increased effort to prepare for a possible flu pandemic. We don’t even want to consider their outlook should it arrive.