Baxter International (NYSE:BAX) and GlaxoSmithKline (NYSE:GSK) are getting paid to follow the Boy Scouts' motto: Be prepared. The U.K. government awarded the two companies contracts to stay geared up to make pandemic flu vaccine when one is identified.

The terms of the neither agreement were disclosed, but the U.K government said that the combined value was worth more than $300 million. The contracts likely contain a relatively small upfront payment to pay the companies to stay ready to produce the vaccine, with a large payment if there is a pandemic.

Baxter also has contracts with the U.S. government to develop bird flu vaccines in conjunction with subsidiaries of Thermo Fisher Scientific (NYSE:TMO) and Computer Sciences (NYSE:CSC). In addition, it has a contract with the Austrian Ministry of Health to deliver vaccines if there's an outbreak. Glaxo has its share of deals as well with Switzerland, Denmark, and Iceland.

Baxter is conducting the first of two phase 3 clinical trials to test the effectiveness of its H5N1 vaccine. Data from an earlier phase 1/2 trial looked pretty good, with subjects showing an immune response even at fairly low doses.

Glaxo is ahead of Baxter with its development of a pre-pandemic vaccine. It has already completed clinical trials and filed for registration of the vaccine in Europe in January.

But the development of a vaccine is a little preliminary at this point. The pandemic flu virus that eventually emerges may look nothing like the current one that has killed almost 200 people in Asia. The development of a vaccine for a new virus is where Baxter has other vaccine makers beat. Baxter's vero cell technology allows it to grow the vaccine in tissue culture, permitting production in about 12 weeks. The traditional chicken egg technology used by Glaxo and Sanofi-Aventis (NYSE:SNY), among others, requires manipulation of the newly discovered virus to permit its growth in chicken eggs, causing a delay in production after the pandemic virus is identified.

Government contracts certainly can be lucrative. The early contracts will often pay for the development costs of the new drug, and the later ones -- as in this case -- pay for the upkeep of the facilities. Sometimes they'll even pay for your capital improvements. The only problem with government contracts is that they eventually run out. Just ask Omrix Biopharmaceuticals (NASDAQ:OMRI), whose product sales fell 34% year over year in its most recent quarter, in large part because of the loss of sales from its bioterrorism contract.

These contracts aren't reasons by themselves to run out and buy the companies' stock, but expanding income sources are almost always a good sign. It indicates good leadership and a reason to put both of them on your watch list.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Glaxo is an Income Investor pick. The Fool has a disclosure policy.