Three days from now an official of the Center for Disease Control will tell a congressional hearing in Los Angeles that he cannot definitely say that any of the 40 deaths previously linked to liquid protein diets were actually caused by liquid protein.

He will say that because of his detailed investigations into 16 of the deaths, six have already been eliminated from those that could have been caused by the substance. "They had other reasons to die," said Dr. Harold Sours of the CDC. But Sours cannot say if the other deaths were or were not caused by liquid protein.

"I don't know enough to say that if these people were given 300 calories of any other substance, like cottage cheese for instance, as their only food intake for a prolonged period, they would not have also died," he said.

Meanwhile, since a Nov. 9 press conference at which Food and Drug Administration chief Donald Kennedy announced that the FDA had received reports of deaths and illnesses that might be associated with use of predigested liquid protein diets, the liquid protein industry has been all but ruined.

In less than two months the multi-million-dollar industry has seen its sales drop almost 95 percent, according to its newly formed trade group, the Protein Products Association. Many firms, including some that have been in business more than a dozen years, are on the verge of bankruptcy. Layoffs have become commonplace. One firm has had to lay off 150 of 157 employees.

The near-death of an industry because of press reports and public statements has raised serious questions about the methods of government regulation in the drug industry. Even some federal regulators have reservations about making statements that receive considerable publicity because of the access to the media by the agency. The same access, they argue, is not available to the industries affected by the statements.

Many of the same questions were raised when the proposed ban on saccharin was announced earlier in the year. In many cases the criticism is not aimed at what the government said, but rather that it was said at such an early stage in the investigation of the substance.

When told that liquid protein sales had nosedived by as much as 95 percent, the FDA's Kennedy said, "Fantastic!"

Although he did express sympathy for the plight of the newly unemployed and the troubled manufactures, he said " you can think of dozens of cases in which unpredicted outcomes of this kind produce economic dislocations. But we have to address those issues with other means. Our law says to protect the public health, not the industry. Fortunately, our statute does not permit us to weigh adverse health conditions against dollars."

He added, "I haven't the slightest doubt that we did the right thing at the right time when we held the press conference. Because this is a tough industry to track, and based on the sales of Dr. Robert Linn's book it appeared that large numbers of people were on the diet, we figured we may have only hit the tip of the iceberg."

"We thought about it before we did it." kennedy said. "We had a lengthy meeting with a number of people in the field, including many medical experts on the subject of liquid protein. We think we went about the analysis in a thoughtful way."

Kennedy said there are two different considerations at work at this case. First, "is there something special about the liquid protein substances themselves that can cause problems, irrespective of the regimen they are used in?" Second, does the regimen, or diet, plus the product constitute a threat to public health?

He admits that he does not yet know if the liquid protein itself is dangerous, but says it is "overwhelmingly likely" that there is a threat to the public health. "The death rate for obese women in the age group using the diet is significantly higher than the death rate for obese women in the same age group not using the diet," he says.

Kennedy said he had to move swiftly once the evidence came in. "We were actually quite conservative," he said. "When people are on a diet for a total of 90 days, even a week or 10 days can be significant. Especially when the kinds of delays that will be involved in completing the analysis are significant."

The problem bagan in 1976 when an osteopath named Dr. Robert Linn published a book called "The Last Chance Diet." The book, which called on people to injest nothing but enough protein to keep their bodies running for the duration of the diet, was a best seller. It said that dieters could lose up to 10 pounds a week by consuming six to eight ounces of liquid protein a day, lots of water, and little or nothing else. He also recommended that anyone using the diet consult with a doctor who would supervise the diet, and possibly prescribe additional vitamins and minerals.

The FDA bagan looking into deaths of dieters reported to have used the diet plan proposed in Linn's book. Because liquid protein is sold over the counter, many people were using the diet without the advantage of a doctor's care. The research led to the press conference and proposed warning labels. It was particularly alarming that some of the dead appear to have been people who were under the care of a doctor.

At a press conference, the FDA said: "It was also announced that the FDA would be taking various steps aimed at policing the industry, including the proposal of mandatory warning labels to be put on liquid protein containers. An estimated 2 million to 4 million people in this country and Canada use liquid protein.

Those proposed regulations appeared in the Federal Register on Dec. 2. The warning for all liquid protein products would state that the product "may cause serious illness or death." The FDA must wait 30 days from the date of publication in the register for public comment before ordering the change in labeling on the product.

The PPA has already filled a civil complaint against the Department of Health, Education and Welfare, the FDA and many of the principals involved in the press conference and proposed labels.

The trade group says the government violated the law by making the public statements it did without further study and without giving the industry a chance to participate or discuss the matter prior to release. Further, the group and its members allege, the problems encountered by the dieters using the plan can just as easily be traced to the lack of other substances as to the presence of liquid protein in the diet.

"Listen," said one manufacturer, "If someone ate nothing but 300 calories worth of chocolate bars for two months, and then he died - which is a pretty good possibility, I guess - would the FDA propose a mandatory warning for chocolate bars?

For many liquid protein manufacturers, the damage may already be done, and any future relief may be too little, and too late.

Michael Mariano, owner of Superior Health, Vitamins and Health Foods, Inc. in West Babylon, Long Island, is 44 years old. "But I've aged a lot in the past two months," he said.

His 18-year-old company sells all kinds of health foods and vitamins.Two years ago his firm began to grow considerably due to the increased interest in liquid protein, which he sold under the name "Progest" although he says he has been selling substantial amounts" of that substance for a decade.

So he began to order new equipment. "I was gearing up to do as much work as I could handle," he said. Although he doesn't actually produce liquid protein, he buys it in bulk from a New Jersey manufacturer and packages it himself.

Mariano has cancelled his orders for new packaging equipment, and laid off half of his 15 employees. "Two-thirds of my business was liquid protein," he said. "Now, two-thirds of my business is gone. I have had to shut down my entire liquid protein operation, all because of irresponsible statements.

Three months ago, David Blechman, president of Twin Labs in Deer Park, N.Y., decided that it was time for his business to expand. He had been producing liquid protein under several brand names for 11 years, and in the past two years demand was up enough for him to plan expansion out of his present 22,000-sqauare-foot plant and warehouse.

"We bought a 41-000-square-foot building," he said of the business he shares with four of his sons. "And last we were supposed to sign the contract. Now I don't know what to do. We're in danger of going under."

Liquid protein is 80 percent of Blechman's business, and in the past month it has dropped 75 percent. He has laid off 150 of his 157 employees in gradual steps beginning last month.

"If we don't sign the contract for the building, we could lose $300,000," he said. "There's nothing wrong with the product. It has always been a good product."

"The allegations are misleading and false," he said of the FDA statements. "The problem started because of Dr. Linn's book."

Arnold Gans, president of Controlled Drugs of Port Redding, N.J., producers of a liquid protein product called "EMF" says, the FDA statements 'have had a devastating effect on our company, and have caused a wholesale abandoment of liquid protein by physicians."

"We did a total of $8.5 million in the first nine months of this year in sales of liquid protein," says Gans. "This month, we did $22,000."

"The FDA could bankrupt this company," he added. "Doctors are refusing to pay their bills, and they are sending us back massive doses of it. And my accounts receivable have grown to $1.4 million, dating over 120 days. That's a lot of money when you consider we only do about $20 million a year."

Gans's company, like all of the others mentioned, is a privately held corporation with a limited number of stockholders.

Another major distributor of liquid protein is Emanuel Goren, president of the Emanuel Goren Group, which distributes "Prolinn." Since he distributes other products as well, his sales volume is only down "about 50 percent. "But all of the 120 sales representatives who work for him around the country have lost considerable commission income; and he has to lay off "three or four of the eight or 10 people that work here in the office."

"The companies that are being smeared have no chance to reply," said Robert Schwartz, of United Nutrician in Narbeth, Pa., manufacturers of "Proamino."

"The FDA gets all this free publicity, our sales drop 85 percent and we have to lay off one third of our employees," he added. "We're beign damned with no defense."

The story is the same for many liquid protein producers. Although they now have a trade association, there is no comprehensive listing of just who makes liquid protein. The industry is centered in the Northeast and in California, and most of the above named firms were cired as being in the largest 10 producers.

When Rep. Henry A. Waxman (D-Calif.) bangs the gavel opening Tuesday's hearings before the Subcommittee on Health and the Environment, he will also hear from Harris Shepphard, assistant director of the San Francisco office of the Federal Trade Commission.

Sheppard has spent four years going after liquid protein manufacturers with "fly-by-night" operations. He is responsible for obtaining industry-wide orders affecting the manner in which liqid protein is marketed and sold.

"It's a very difficult judgement for the staff of any public agency to make as to when the public should be alerted to a potential public health hazard," Sheppard says. "There must be a balancing of the interests of responsible business and the public interest to be free from undisclosed and unreasonable risk of harm."

Sheppard says the agencies responsible for scrutinizing the marketing and promotion of products or services that can expose the public to health or safety risks" are under a duty to exercise care that charges are not made prematurely."

But, in his judgement, "the greater the suspected risk, on a spectrum ranging from the death to minor illness, the sooner disclosure of that potential risk should be made."

Waxman agrees, adding, "If we could eliminate the red tape and expedite administrative proceedings, the irresponsible manufacturers would be out of business. Responsible companies should not be adversely affected by months or publicity linking all protein products together."