Announcing a deal, Cao Minh Quang, director of the Department of Pharmaceutical Products Management, said it would "help the country acquire sufficient quantities of the medicine in order to face up to a bird flu epidemic."

But it would be Roche that would select the Vietnamese companies to be involved in production, he added. That would include helping to process the drug oseltamivir, the generic name of Tamiflu.

Roche officials in Vietnam would not confirm a final agreement had been reached but said they were in "positive" talks with Vietnamese officials.

In the meantime, Roche has agreed to supply Vietnam 25 million capsules of Tamiflu before the end of 2006.

"Roche will cooperate with Vietnam in order to supply sufficient amounts of Tamiflu in case of a pandemic," Quang said.

Vietnamese authorities had Tuesday reported the country's first human bird flu death in more than three months, taking its official toll to 42, amid fears that the deadly virus could thrive in the coming winter flu season.

The country of 82 million people, which accounts for more than two- thirds of total human fatalities from bird flu since outbreaks began in 2003, currently has only 600,000 Tamiflu capsules.

Quang said Tamiflu production could begin within two months.

He had said last month that Vietnam could produce the drug without a license should a pandemic occur.

The head of a state-run drug firm in Hanoi said Vietnam had the capacity to begin production almost immediately. "We have about 50 establishments in Vietnam that would be capable of manufacturing Tamiflu," Le Ngoc Phan said.

"Once officially authorized, I think Vietnam could produce 15-20 million capsules of Tamiflu per year," he said.

World Health Organization spokeswoman in Hanoi, Dida Connor, agreed that Vietnam was able to make the drug.

"There is a potential capacity within Vietnam's established pharmaceutical companies," she said. "This needs to be worked out between Roche and the companies."

Authorities in Thailand said last week that the country would begin making its own generic version by February. According to Health Ministry officials, Roche had not patented Tamiflu in Thailand, leaving the government free to make its own version.

And Taiwan officials said last month that they were planning a trial production of Tamiflu in December while pushing for negotiations with Roche about compensation if the drug was used prior to approval from the firm.

The WHO in Geneva said earlier this week that it was in talks with Roche on building a second stockpile of Tamiflu.

Roche has already pledged to donate to the WHO 30 million Tamiflu doses - enough to treat three million people. The stockpile, which the WHO hopes to have at its disposal in early 2006, would be used in an emergency.

And in Geneva, where hundreds of experts are meeting to plan responses to a pandemic brought on by the H5N1 virus, the WHO said Wednesday that production of Tamiflu in 2006 and 2007 by Roche will be enough to meet present orders.

The assistant director-general of the WHO, Margaret Chan, who is negotiating with Roche over enlarging the agency's stockpile of Tamiflu, said company executives had told her production of the drug would be 115 million courses in 2006, and this would rise to 300 million in 2007, "which surpasses the total orders received."

Countries have placed huge orders for Tamiflu as part of preparations for a feared pandemic that could derive from the H5N1 virus circulating among poultry in Asia.

Tamiflu is designed to inhibit reproduction of the flu virus after it infects the body, with the goal of reducing the severity of symptoms and duration of the illness. AGENCE FRANCE-PRESSE