Actually, it can and will kill them. My first death was a scientist who "died in a lab accident." One blow up too many I'm afraid. This is how I first figured out that the potions blowing up actually harmed my villagers. Luckily I had already discovered the healing potion, so after that I was very careful to use rotating villagers to make potions and if a blow up occured, I immediately had that same villager make and use the healing potion.