UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(MARK ONE)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934

           For the transition period from ____________ to ____________

                       COMMISSION FILE NUMBER   1-10451

                        NORTH AMERICAN VACCINE, INC.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)

      CANADA                                           98-0121241
      ------                                           ----------
        (State or other jurisdiction of                    (IRS Employer
        incorporation or organization)                     Identification No.)

10150 OLD COLUMBIA ROAD, COLUMBIA, MARYLAND                       21046
-------------------------------------------                       -----
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code:  (410) 309-7100

FORMER ADDRESS:
--------------------------------------------------------------------------------
(Former  name, former  address  and  former  fiscal year, if  changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes   X      No      
     ---     ---

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

COMMON STOCK, NO PAR  VALUE, OUTSTANDING AS  OF  APRIL  22,  1999  -- 32,281,576
SHARES


<PAGE>
                                TABLE OF CONTENTS



                                                                     PAGE NUMBER
                                                                     -----------
PART I.  FINANCIAL INFORMATION

Item 1.    Financial Statements.........................................   3

           Consolidated Balance Sheets..................................   4

           Consolidated Statements of Operations........................   5

           Consolidated Statements of Shareholders' Deficit.............   6

           Consolidated Statements of Cash Flows........................   7

           Notes to Condensed Consolidated Financial Statements.........   9

Item 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations................  13

Item 3.    Quantitative and Qualitative Disclosures About Market Risk...  22


PART II.   OTHER INFORMATION

Item 4.    Submission of Matters to a Vote of Security Holders..........  24

Item 5.    Other Information............................................  25

Item 6.    Exhibits and Reports on Form 8-K.............................  25


SIGNATURES .............................................................  26


                                       2
<PAGE>

                          PART I. FINANCIAL INFORMATION


ITEM 1.   FINANCIAL STATEMENTS

The following unaudited,  condensed  consolidated  financial statements of North
American  Vaccine,  Inc. and Subsidiaries  (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and,  therefore,  omit or condense
certain  footnotes  and  other   information   normally  included  in  financial
statements prepared in accordance with generally accepted accounting principles.
This report should be read in  conjunction  with the Company's  Annual Report on
Form 10-K  filed  for the year  ended  December  31,  1998.  In the  opinion  of
management,  all adjustments  (consisting only of normal recurring  adjustments)
necessary for a fair  presentation of the financial  information for the interim
periods  reported  have been made.  Results of  operations  for the three months
ended March 31, 1999,  will not necessarily be indicative of the results for the
entire fiscal year ending December 31, 1999.


                                       3
<PAGE>
<TABLE>
<CAPTION>



NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)                    MARCH 31,      DECEMBER 31,
                                                                     1999            1998
                                                                 --------------  --------------
                                                                  (UNAUDITED)
<S>                                                               <C>             <C>    

ASSETS
------
CURRENT ASSETS:
  Cash and cash equivalents                                       $ 13,487        $ 22,953
  Accounts receivable                                                1,537           1,625
  Inventory                                                          4,642           4,067
  Prepaid expenses and other current assets                          1,262             998
                                                                 --------------  --------------
          Total current assets                                      20,928          29,643
Property, plant and equipment, net                                  25,133          25,315
Investment in affiliate, at market                                     -             1,554
Deferred financing costs, net                                        2,363           2,505
Cash restricted for lease obligation                                 4,470           4,877
Other assets                                                           731             631
                                                                 --------------  --------------
     TOTAL ASSETS                                                 $ 53,625        $ 64,525
                                                                 ==============  ==============

LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
  Accounts payable                                                 $ 3,032         $ 3,881
  Deferred revenue                                                     485             850
  Obligation under capital leases, current portion                   1,839           1,754
  Other current liabilities                                          7,337           5,848
                                                                 --------------  --------------
         Total current liabilities                                  12,693          12,333

6.5% Convertible subordinated notes, due May 1, 2003                83,734          83,734
4.5% Convertible secured notes, due November 13, 2003               25,000          25,000
Obligation under capital leases, net of current portions             1,987           2,356
Deferred rent credits, net of current portion                          111              76
                                                                 --------------  --------------
     Total liabilities                                             123,525         123,499

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIT:
  Preferred stock, no par value; unlimited shares 
  authorized-Series A, convertible; issued and 
     outstanding 2,000,000 shares; entitled to  
     Can $2.50 per share (or U.S. $3.3 million 
     in the aggregate) in liquidation                                6,538           6,538
  Common stock, no par value; unlimited shares 
    authorized; issued 32,281,576 shares at 
    March 31, 1999 and 32,216,096 shares at                         81,079          80,824
    December 31, 1998
  Additional paid-in capital                                        11,956          11,956
  Cumulative comprehensive income excluded 
    from net loss                                                      -               926
  Accumulated deficit                                             (169,473)       (159,218)
                                                                 --------------  --------------
         Total shareholders' deficit                               (69,900)        (58,974)

                                                                 --------------  --------------
     TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                  $ 53,625        $ 64,525
                                                                 ==============  ==============
</TABLE>

                                       4


<PAGE>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)


                                             THREE MONTHS ENDED
                                             MARCH 31,
                                                1999           1998
                                            --------------  ------------

 REVENUES:
      Product sales                               $ 1,159         $ 263
      Marketing, research and development             365           571
        agreements                          --------------  ------------
           Total revenues                           1,524           834
                                            --------------  ------------

 OPERATING EXPENSES:
     Production                                     4,790         4,981
     Research and development                       3,768         4,043
     Selling, general and administrative            2,549         2,507
                                            --------------  ------------
           Total operating expenses                11,107        11,531
                                            --------------  ------------

 OPERATING LOSS                                    (9,583)      (10,697)

 OTHER INCOME (EXPENSE):
     Gain on sale of investment in affiliate          952             -
     Interest and dividend income                     254           554
     Interest expense                              (1,878)       (1,617)
                                            --------------  ------------
 NET LOSS                                       $ (10,255)    $ (11,760)
                                            ==============  ============

 BASIC AND DILUTED NET LOSS PER SHARE             $ (0.32)      $ (0.37)

 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
      OUTSTANDING                                  32,271        32,034



                                       5
<PAGE>


NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(IN THOUSANDS)
(UNAUDITED)                                                               
<TABLE>
<CAPTION>


                            SERIES A                                                         CUMULATIVE        
                            CONVERTIBLE                                                     COMPREHENSIVE                 TOTAL
                            PREFERRED STOCK               COMMON STOCK        ADDITIONAL        INCOME        ACCUM-      SHARE-
                            -----------------------------------------------    PAID-IN      EXCLUDED FROM     ULATED      HOLDERS'
                                 SHARES     AMOUNT    SHARES       AMOUNT      CAPITAL         NET LOSS       DEFICIT     DEFICIT
                            ------------------------------------------------------------------------------------------------------

<S>                              <C>        <C>       <C>          <C>        <C>              <C>            <C>         <C>

Balance,
  December 31, 1998              2,000      $6,538   32,216        $80,824    $11,956            $ 926      $(159,218)   $(58,974)
Net loss                            -            -        -             -          -                -         (10,255)    (10,255)
Increase in market
  value of investment               -            -        -             -          -                26            -            26
Realized investment
  holding gain                      -            -        -             -          -              (952)           -          (952)
                                                                                                                        ----------
Comprehensive loss                                                                                                        (11,181)
Exercises of stock
  options                           -            -       58            169         -                -             -           169
Shares issued under
  401(k) plan                       -            -        8             86         -                -             -            86
Balance,
                            ------------------------------------------------------------------------------------------------------
  March 31, 1999                 2,000      $6,538   32,282        $81,079    $11,956            $  -       $(169,473)   $(69,900)
                            ======================================================================================================
</TABLE>

                                        6
<PAGE>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED
                                                                                MARCH 31,
                                                                                  1999                      1998
                                                                               -------------------     -------------
<S>                                                                                  <C>                  <C>    

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                         $ (10,255)           $ (11,760)
    Adjustments to reconcile net loss to net cash used in operating
    activities:
        Gain on sale of investment in affiliate                                           (952)                   -
        Depreciation and amortization                                                    1,576                2,042
        Amortization and reduction of deferred financing costs                             142                  122
        Contribution of common stock to 401(k) plan                                         86                   69
        Increase in other assets                                                          (100)                (138)
        Increase (decrease) in deferred rent                                                17                  (24)
        Cash flows (used in) provided by other working capital items                      (459)               1,057
                                                                               -------------------     -------------
              Net cash used in operating activities                                     (9,945)              (8,632)
                                                                               -------------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                                                (1,134)                (605)
    Proceeds from sale of investment in affiliate                                        1,581                    -
                                                                               -------------------     -------------
               Net cash provided by (used in) investing activities                         447                 (605)
                                                                               -------------------     -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from exercises of stock options, net                                          169                  851
    Principal payments on capital lease obligations                                       (544)                (383)
    Cash restricted for capital lease obligation                                           407                    -
                                                                               -------------------     -------------
               Net cash (used in) provided by financing activities                          32                  468
                                                                               -------------------     -------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                               (9,466)              (8,769)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                          22,953               45,502
                                                                               -------------------     -------------        
CASH AND CASH EQUIVALENTS, END OF PERIOD                                              $ 13,487             $ 36,733
                                                                               ===================     =============
            
</TABLE>

                           7
<PAGE>

NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED
                                                                                MARCH 31,
                                                                                  1999                      1998
                                                                               -------------------     ------------------
<S>                                                                                    <C>                   <C>    
CASH FLOWS PROVIDED BY OTHER WORKING CAPITAL ITEMS:

    (Increase) decrease in :
          Accounts receivable                                                           $   88              $    (192)
          Inventory                                                                       (575)                   218
          Prepaid expenses and other current assets                                       (265)                  (645)

    Increase (decrease) in :
          Accounts payable                                                                (849)                   278
          Deferred revenue and other current liabilities                                 1,142                  1,398
                                                                               -------------------     ------------------
    Net cash (used in) provided by other working capital items                          $ (459)             $   1,057
                                                                               ===================     ==================



 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 Cash paid for interest                                                                 $   98              $     132
                                                                               ===================     ==================

 Equipment acquired through capital lease                                               $  260              $      -
                                                                               ===================     ==================


</TABLE>

                                       8
<PAGE>

                  NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1. BUSINESS

The Company is engaged in the  research,  development,  production,  and sale of
vaccines for the  prevention of infectious  diseases in children and adults.  In
July 1998, the Company received  marketing  authorization from the U.S. Food and
Drug  Administration  ("FDA") to market its DTaP  vaccine  (Certiva(TM))  in the
United States for the prevention of diphtheria, tetanus, and pertussis (whooping
cough).  Under a marketing agreement between the Company and Abbott Laboratories
("Abbott"),  Abbott markets  Certiva(TM) to private  physicians and managed care
markets in the United States for  immunization  of infants and children.  Abbott
began the launch of Certiva(TM) in October 1998. The Company markets Certiva(TM)
in the U.S.  to  government  purchasers,  including  state  governments  and the
Centers  for  Disease  Control  and  Prevention  ("CDC").  Previously,  in 1996,
regulatory  approval for a European  formulation of  Certiva(TM)  was granted in
Sweden,  and  regulatory  approval of a combined  DTaP-IPV  (polio)  vaccine was
granted  in  Denmark.  In April  1997,  regulatory  approval  for the  Company's
monovalent  acellular  pertussis  ("aP") vaccine to vaccinate  children was also
granted in Sweden, thereby expanding the market for the Company's aP vaccine. In
June 1998, the Company was advised that,  under the European mutual  recognition
procedure,  the regulatory authorities in Germany,  Austria,  Sweden and Finland
agreed to  recognize  the  marketing  authorization  granted by Denmark  for the
DTaP-IPV  vaccine.  The mutual  recognition  procedure now requires that each of
these regulatory  authorities,  upon receipt of certain prescribed  information,
issue the national  marketing  authorization  for the product.  In January 1999,
Germany issued its national  marketing  authorization for the Company's DTaP-IPV
vaccine.  The Company has  appointed  Chiron  Behring GmbH & Co.  ("Chiron")  to
market and distribute the DTaP-IPV product in Germany and Austria. Statens Serum
Institut,  Copenhagen,  Denmark, holds the product registrations and will market
and  distribute  the  product in the  Scandinavian,  Baltic and other  countries
comprising its territory.

2. SIGNIFICANT ACCOUNTING POLICIES

(A) BASIS OF  ACCOUNTING  AND  CURRENCY.  The Company is a Canadian  corporation
incorporated under the Canadian Business Corporations Act ("CBCA") on August 31,
1989. The accompanying  consolidated  financial statements have been prepared in
accordance with generally accepted accounting  principles ("GAAP") in the United
States and are  denominated in U.S.  dollars,  because the Company  conducts the
majority of its transactions in this currency.  The application of Canadian GAAP
would  not  result  in  material  adjustments  to  the  accompanying   financial
statements  except for the impact of the  adoption  of  Statement  of  Financial
Accounting  Standards ("SFAS") No. 115, and the interest charge of $12.0 million
related to the issuance of the 4.5%  Convertible  Secured Notes due November 13,



                                       9
<PAGE>


2003 ("4.5% Notes") during the fourth quarter of 1998.  Under Canadian GAAP,
the  beneficial  conversion  feature of the 4.5% Notes would be assigned a value
and reported as additional  equity to be amortized to retained  earnings ratably
over the term of the 4.5% Notes  rather than being  charged to interest in 1998.
The effect of foreign currency translation has been immaterial.

(B)  PERVASIVENESS  OF ESTIMATES.  The  preparation  of financial  statements in
conformity with GAAP requires  management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from estimates.

(C) REVENUE RECOGNITION.  Nonrefundable fees or milestone payments in connection
with research and  development or  collaborative  agreements are recognized when
they are earned in accordance with the applicable  performance  requirements and
contract  terms.  Revenue from product sales is recognized  when all significant
risks of ownership  have been  transferred,  the amount of the selling  price is
fixed and  determinable,  all significant  related acts of performance have been
completed,  and no other significant  uncertainties  exist. In most cases, these
criteria are met when the goods are shipped.

(D) SEGMENT REPORTING.  In 1997, the Financial Accounting Standards Board issued
SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information."  The Company  implemented SFAS No. 131 for the year ended December
31, 1998 and has determined that it currently does not have reportable segments.
Product  sales in the United States were  approximately  $796,000 and $0 for the
first  quarters  ended March 31, 1999 and 1998,  respectively.  Product sales to
Europe were  approximately  $363,000 and $263,000 for the first  quarters  ended
March  31,  1999 and  1998,  respectively.  All  products  are  currently  being
manufactured at the Company's one production  facility in the United States. The
production  process,  and ultimately product costing,  is primarily the same for
all of the Company's  acellular  pertussis  vaccine  products sold in the United
States and Europe.  Because of this,  and the  relative  consistency  in selling
prices,  as well as the  nature  of the  distribution  methods  utilized  by the
Company,  the  Company  does not  differentiate  and manage its  business  along
geographic lines.

2. PROPERTY, PLANT AND EQUIPMENT

In March 1998, the Company leased an  approximately  75,500 square foot facility
to be used for research,  development,  general and administrative functions and
for future  expansion of the Company's  operations.  The lease is for an initial
term of ten years, with two five-year  renewal options.  The initial base annual
rent under the lease is approximately  $981,000 with minimum annual escalations.
At the end of the fifth year of the initial  term,  the Company has the right to
terminate the lease for a specified fee. In addition,  the Company has an option
to  purchase  the  facility  during  specified  periods of the lease  term.  The
landlord  provided the Company a tenant  improvement  allowance of approximately
$1.4 million.



                                       10
<PAGE>

3. INVENTORIES

Inventories  are stated at the lower of cost  (first-in,  first-out)  or market.
Components  of  inventory  cost  include  materials,  labor,  and  manufacturing
overhead.  Production  costs  attributable  to  a  product  are  expensed  until
regulatory approval is obtained for such product. Beginning in the third quarter
of 1998,  costs  to  produce  Certiva(TM)  for sale in the  United  States  were
capitalized. Any production costs incurred in excess of net realizable value are
expensed in the quarter in which they are incurred.  Inventories  consist of the
following:

                                         March 31,    December 31,
                                           1999            1998      
                                         ---------    ------------
                                              (in thousands)
           Raw materials                 $ 2,392       $  2,509
           Work in process                 1,856          1,024
           Finished goods                    394            534
                                        --------       --------
                Total                    $ 4,642       $  4,067
                                        ========       ========


4. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following components:

                                            March 31,      December 31,
                                               1999            1998      
                                            ---------      ------------
                                                 (in thousands)
Accrued interest                           $ 2,741          $ 1,103
Payroll and fringe benefits                  1,698            1,702
Accrued taxes                                1,053            1,149
Reserve for contract loss                      720              720
Accrued consulting and professional fees       348              353
Accrued costs of clinical trials               113              216
Other accrued liabilities                      664              605
                                          --------         --------
Total other current liabilities            $ 7,337          $ 5,848
                                          ========         ========



5.  RESTRICTED CASH AND OBLIGATIONS UNDER CAPITAL LEASE

In connection with an operating  lease for a 35,000 square foot  development and
production  facility,  the Company  entered into an agreement  that included the
purchase  and lease of  equipment  and  leasehold  improvements.  As part of the
operating lease, the Company assumed the underlying real estate leases which are
scheduled to expire in February  2001, but may be extended  through 2011.  Under
the terms of the equipment  lease,  there are certain  financial  covenants that
obligate the Company to maintain certain cash and investment balances, a minimum
tangible net worth (defined to include amounts under the outstanding convertible
subordinated  notes),  and certain other financial  ratios.  The equipment lease
agreement  permits the Company,  at its option,  to suspend the  application  of
financial covenants by posting a stand-by letter of credit, which may be revoked



                                       11
<PAGE>

by the Company  provided  certain  conditions are  satisfied.  In April 1998, as
permitted by the equipment lease  agreement,  the Company  voluntarily  posted a
letter  of  credit  in the  amount  of  $5.9  million,  thereby  suspending  the
application  of all  financial  covenants.  The letter of credit  decreases on a
monthly basis as the payments on the lease obligation are made and is secured by
a  restricted  cash  deposit of an equal  amount.  The  balance of the letter of
credit and the corresponding  restricted cash is $4.5 million at March 31, 1999.
The letter of credit will expire by its terms on November 1, 2000.

6.  CONVERTIBLE DEBT

In November  1998,  the Company  completed a $25 million  financing  through the
private  placement  of 4.5%  Notes.  The 4.5% Notes were sold at par,  mature on
November 13, 2003 and provide for interest  payable  semi-annually on May 13 and
November 13 of each year  commencing on May 13, 1999. The net proceeds from this
offering were approximately  $24.6 million.  The 4.5% Notes are convertible,  in
whole or in  part,  by the  holder(s)  at any time  prior  to  maturity  (unless
previously redeemed or repurchased) into shares of the Company's Common Stock at
the  conversion  price of  approximately  $8.54 per  share.  The 4.5%  Notes are
secured by certain assets of the Company, are otherwise subordinated in right of
payment to all existing and future senior  indebtedness  of the Company,  do not
restrict the  incurrence of future senior or other  indebtedness  of the Company
and are  redeemable,  in whole or in part,  at the  option of the  Company on or
after one year from the date of issuance at par,  plus  accrued  interest to the
redemption date.

On November 12, 1998, the date on which the 4.5% Notes were issued,  the closing
price for the  Company's  Common Stock was $12.625,  which  exceeded the initial
conversion  price  for the  4.5%  Notes.  The  difference  between  the  initial
conversion price and the fair market value per share on the date of issue of the
4.5%  Notes,  for the  number of  equivalent  shares,  has been  recognized  and
recorded as paid in capital,  thus increasing the effective interest rate of the
4.5% Notes. Given that the 4.5% Notes are immediately convertible,  the interest
expense of  approximately  $12.0  million  was  recognized  immediately  and was
included in the 1998 Consolidated Statements of Operations.



                                       12
<PAGE>


ITEM 2.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL 
         --------------------------------------------------
         CONDITION AND RESULTS OF OPERATIONS
         -----------------------------------

THE  FOLLOWING  PARAGRAPHS  IN THIS FORM 10-Q CONTAIN  CERTAIN  FORWARD  LOOKING
STATEMENTS, WHICH ARE WITHIN THE MEANING OF AND MADE PURSUANT TO THE SAFE HARBOR
PROVISIONS  OF THE  PRIVATE  SECURITIES  LITIGATION  REFORM  ACT OF 1995.  THESE
FORWARD LOOKING  STATEMENTS  INCLUDE,  WITHOUT  LIMITATION,  THOSE REGARDING THE
PROSPECTS  AND  TIMING FOR FILING FOR AND  OBTAINING  REGULATORY  APPROVAL,  THE
PROSPECTS FOR AND TIMING OF MARKETING AND DISTRIBUTION OF VACCINE PRODUCTS,  THE
PROSPECTS FOR AND TIMING OF INCREASING  PRODUCTION CAPACITY AND EFFICIENCY,  THE
PROSPECTS FOR AND FACTORS AFFECTING FUTURE REVENUES AND PROFITABILITY, PROSPECTS
FOR REDUCED  PRODUCTION COSTS,  LIKELIHOOD OF ADDITIONAL  FUNDING UNDER LICENSE,
MARKETING,   DISTRIBUTION   AND/OR   DEVELOPMENT   AGREEMENTS  OR  FROM  FURTHER
FINANCINGS,  PROSPECTS FOR COMPLETING NEW BUSINESS  COLLABORATION  ARRANGEMENTS,
CASH REQUIREMENTS FOR FUTURE  OPERATIONS,  PROJECTED RESULTS OF OPERATIONS,  AND
PROJECTED CAPITAL  EXPENDITURES AND COST REDUCTIONS.  READERS ARE CAUTIONED THAT
FORWARD LOOKING  STATEMENTS INVOLVE RISKS,  UNCERTAINTIES,  AND FACTORS THAT MAY
AFFECT THE COMPANY'S BUSINESS AND PROSPECTS,  INCLUDING WITHOUT LIMITATION THOSE
DESCRIBED  BELOW AS WELL AS THE  RISKS  ASSOCIATED  WITH:  OBTAINING  REGULATORY
APPROVAL OF PRODUCTS AND  FACILITIES BY REGULATORY  AGENCIES  INCLUDING THE U.S.
FOOD AND DRUG ADMINISTRATION ("FDA"); THE PRODUCTION OF VACCINES; THE TIMING FOR
AND EFFICIENCIES  RECOGNIZED FROM PRODUCT CAPACITY  IMPROVEMENTS;  THE NATURE OF
COMPETITION;  NEED FOR EFFECTIVE MARKETING;  DEPENDENCE ON SUPPLIERS,  INCLUDING
STATENS SERUM INSTITUT  ("SSI"),  AND  DISTRIBUTORS;  UNCERTAINTIES  RELATING TO
CLINICAL  TRIALS;  AND THE TIMING AND  NECESSITY  FOR  EXPENDITURES  AND/OR COST
REDUCTIONS,  ALL AS DISCUSSED IN THE COMPANY'S FILINGS WITH THE U.S.  SECURITIES
AND EXCHANGE COMMISSION ("SEC"),  INCLUDING THE 1998 ANNUAL REPORT ON FORM 10-K,
TO WHICH THE READER'S ATTENTION IS DIRECTED.

BACKGROUND
----------

         The Company is engaged in the research,  development,  production,  and
sale of vaccines  for the  prevention  of  infectious  diseases in children  and
adults.

         In  April  1999,  the  Company  announced  that  it  had  significantly
shortened  the  timeline  for  preparing  and  submitting  an  application   for
regulatory  approval to sell its group C meningococcal  conjugate vaccine in the
United Kingdom.  The Company  anticipates that during the fourth quarter of 1999
it will file with the U.K.  regulatory  authorities the application for approval
of its group C meningococcal conjugate vaccine.

         In July 1998,  the Company  received  FDA approval to  manufacture  and
market  its  DTaP  vaccine  Certiva(TM)  in the  United  States.  Under  the FDA
approval,  Certiva(TM) is indicated for active immunization  against diphtheria,
tetanus and  pertussis  (whooping  cough) in infants and  children  six weeks to
seven years of age. The Company produces the monocomponent  acellular  pertussis
toxoid and  formulates  the final product with  diphtheria  and tetanus  toxoids
manufactured and supplied by SSI.

         Under a marketing agreement between the Company and Abbott Laboratories
("Abbott"),  Abbott markets  Certiva(TM) to private  physicians and managed care
markets  in the  United States for immunization  of infants and children. Abbott


                                       13
<PAGE>


began the launch of Certiva(TM) in October 1998. The Company markets Certiva(TM)
and the  combination  vaccines in the U.S. to government  purchasers,  including
state  governments and the Centers for Disease  Control and Prevention  ("CDC").
The marketing agreement also will allow Abbott to market the Company's DTaP-HIB,
DTaP-IPV  and  DTaP-IPV-HIB  combination  vaccines in the U.S.,  which are under
development.

         The Company and Abbott are collaborating in the clinical development of
the combination vaccines, and the Company will receive payments upon achievement
of prescribed clinical development milestones.  Under the agreement with Abbott,
the Company will receive  revenues from Abbott as it purchases  Certiva(TM)  and
the combination  vaccine products for resale to the private  pediatric market in
the United States. See "Liquidity and Capital Resources; Outlook," below.

         FDA approval of  Certiva(TM)  followed  regulatory  approval in various
European countries of vaccines using the Company's  acellular pertussis vaccine.
The Swedish Ministry of Health granted  regulatory  approval in February 1996 to
market a European formulation of Certiva(TM).  This marketing  authorization was
the first regulatory  approval for any of the Company's  products.  In addition,
the Danish  National  Board of Health granted  regulatory  approval in September
1996 of the DTaP vaccine  combined  with an enhanced  inactivated  polio vaccine
("DTaP-IPV")  for all  primary and  booster  doses for  infants and  children in
Denmark.  In June 1998, the Company was advised that,  under the European mutual
recognition procedure,  the regulatory authorities in Germany,  Austria,  Sweden
and Finland  agreed to recognize the marketing  authorization  granted to SSI by
Denmark for the DTaP-IPV vaccine. The mutual recognition  procedure now requires
that these regulatory  authorities issue national marketing  authorizations upon
receipt of certain  information.  In January 1999,  Germany  issued its national
marketing  authorization  for the Company's  DTaP-IPV  vaccine.  The Company has
appointed  Chiron  Behring GmbH & Co.  ("Chiron") to market and  distribute  the
DTaP-IPV  product  in  Germany  and  Austria.  SSI  holds the  European  product
registrations  and will market and distribute  the product in the  Scandinavian,
Baltic and other countries comprising its territory ("SSI's Territory").

         Under  supply  agreements,   the  Company  manufactures  the  acellular
pertussis   component,   and  SSI  manufactures  the  diphtheria,   tetanus  and
inactivated polio vaccine ("IPV") components for the DTaP and DTaP-IPV vaccines.
SSI is responsible  for the marketing and  distribution of the DTaP and DTaP-IPV
products in SSI's  Territory.  Accordingly,  the  Company  has been  selling its
acellular  pertussis  toxoid to SSI for  formulation  into DTaP and DTaP-IPV for
sale in its territory.

         In May 1996,  the Company  completed  an offering of 6.50%  convertible
subordinated  notes in the principal amount of $86.25 million due in full on May
1, 2003 ("6.5% Notes").  The net proceeds from this offering were  approximately
$82.7  million.  Interest  on the notes is  payable  semi-annually  on May 1 and
November  1 each  year.  The 6.5%  Notes  are  convertible  into  shares  of the
Company's Common Stock, at a conversion price of approximately $24.86 per share,
are subordinated to present and future senior indebtedness of the Company,  will
not restrict the incurrence of future senior or other indebtedness by the



                                       14
<PAGE>

Company,  and are redeemable,  in whole or in part, at the option of the Company
on or after May 1,  1999, at certain  pre-established  redemption  prices,  plus
accrued interest.  Upon a change in control, the Company is required to offer to
purchase  all or part of the 6.5% Notes  then  outstanding  at a purchase  price
equal to 100% of the principal  amount  thereof,  plus interest.  The repurchase
price is  payable  in cash or, at the  option of the  Company,  in shares of the
Company's Common Stock. In December of 1997,  approximately  $2.5 million of the
principal  amount of the 6.5% Notes were  converted  into 101,207  shares of the
Company's  Common  Stock.  As of March 31,  1999,  the  principal  amount of the
outstanding notes was $83.7 million.

         In November  1998,  the Company  completed a private  placement  of $25
million  aggregate  principal  amount  of 4.5%  Convertible  Secured  Notes  due
November  13,  2003  ("4.5%  Notes").  The 4.5% Notes are  convertible  into the
Company's Common Stock at a conversion  price of approximately  $8.54 per share,
equivalent to a conversion rate of 117.0878 shares per $1,000  principal  amount
of the 4.5% Notes.  The 4.5% Notes are secured by certain assets of the Company,
are otherwise subordinated in right of payment to all existing and future senior
indebtedness of the Company,  do not restrict the incurrence of future senior or
other  indebtedness of the Company and will be redeemable,  in whole or in part,
at the option of the Company on or after  November  13,  1999.  Upon a change in
control, the Company will be required to offer to purchase all of the 4.5% Notes
then  outstanding  at a purchase  price  equal to 100% of the  principal  amount
thereof, plus accrued interest. The repurchase price will be payable in cash or,
at the option of the Company,  in shares of the Company's Common Stock. The 4.5%
Notes were issued to certain  existing  shareholders,  affiliates and accredited
investors,  including  BioChem  Pharma  Inc.  and  Phillip  Frost,  M.D.,  which
purchased  4.5% Notes in the principal  amount of $9 million and $4.25  million,
respectively.  In addition,  Societe financiere d'innovation inc. ("Sofinov"), a
high  technology  investment  fund that is a subsidiary of La Caisse de depot et
placement du Quebec,  purchased 4.5% Notes in the aggregate  principal amount of
$6.25  million.  Denis  Dionne,  a director of the Company,  is the President of
Sofinov.

         The  Company had 314 and 275  employees  as of March 31, 1999 and 1998,
respectively.

RESULTS OF OPERATIONS 
---------------------

THREE MONTHS ENDED MARCH 31, 1999 AND 1998

         In 1999, the Company  recognized total revenue of $1.5 million of which
approximately  $800,000  was from product  sales of  Certiva(TM)  to  government
agencies and to Abbott,  approximately $360,000 was from sales of product to SSI
and  approximately  $365,000 was under  collaborative  agreements.  Revenue from
collaborative  agreements  consists of  development  funding under the Company's
agreement with Abbott.  Revenue in 1998 totaled $834,000 of which  approximately
$263,000 was from sales of product to SSI and the remaining  from  collaborative
agreements.

         Production  expenses were $4.8 million in 1999 compared to $5.0 million
in 1998. The decrease in these expenses in 1999 is primarily attributable to the


                                       15
<PAGE>


capitalization of costs to produce Certiva(TM)  inventory for sale in the United
States and to a much lesser extent lower material  costs and lower  depreciation
expense related to the use of an accelerated depreciation method in prior years.
These decreases were offset by higher labor expenses,  attributable primarily to
an  increase  in the number of  employees  and to  required  FDA  post-marketing
licensing  and  surveillance   expenses.   Costs   attributable  to  Certiva(TM)
production  were expensed  until  regulatory  approval was obtained in the third
quarter of 1998.

         Research and development expenses were $3.8 million in 1999 compared to
$4.0  million  in  1998.  The  decrease  is  attributable   primarily  to  lower
depreciation  expense related to the use of an accelerated  depreciation  method
prior to 1998,  amounts received in 1998 as  reimbursement  for expenses under a
collaborative  agreement and lower regulatory  consulting expense. This decrease
was  offset in part by higher  building  costs  associated  with the new  75,500
square  foot  leased  facility  and  increases  in  labor  costs  attributed  to
additional employees for product development projects.

         General and administrative expenses were $2.5 million in 1999 and 1998.
In 1999, there were increases in litigation  related legal expenses,  as well as
increased building costs associated with the new facility obtained in the second
quarter of 1998.  These increases were offset by decreases in outside  marketing
related costs.

         In March 1999,  the Company sold the  remaining  125,000  shares of its
investment in IVAX  Corporation  ("IVAX") common stock generating gross proceeds
of approximately $1.6 million and income of $952,000.

         Interest  and  dividend  income  decreased  to  $254,000  in 1999  from
$554,000 in 1998.  This  reduction is due primarily to a decrease in the average
cash balance.

         Interest expense increased to $1.9 million in 1999 from $1.6 million in
1998. The increase is due to the increased debt related to the 4.5% Notes offset
in part by principal payments made on the equipment lease.

         The  factors  cited above  resulted  in a net loss of $10.3  million or
$0.32 per share in 1999 as compared to a net loss of $11.8  million or $0.37 per
share in 1998.  Without the gain on sale of the investment in an affiliate,  the
net loss in 1999  would  have  been  $11.2  million  or  $0.35  per  share.  The
weighted-average  number of common shares  outstanding was 32.2 million for 1999
compared   to  32.0   million   for  1998.   The   increase  in  the  number  of
weighted-average shares outstanding for 1999 as compared to 1998 is attributable
primarily to the exercise of stock options.

LIQUIDITY AND CAPITAL RESOURCES; OUTLOOK
----------------------------------------

         The Company's cash requirement for operations for the first quarter was
$9.9  million as compared to $12.6  million in the fourth  quarter of 1998.  The
Company's  cash  requirement  for  operations  is the net cash used in operating
activities  for the period being  reported less amounts  received under license,


                                       16
<PAGE>


marketing,  distribution  and/or development  agreements and further adjusted by
the timing of proceeds from the sale of an investment in an affiliate.

         At March  31,  1999,  the  Company  had cash  and cash  equivalents  of
approximately  $13.5  million.  In  addition,  the Company  had $4.5  million of
restricted  cash  pledged as  collateral  under the letter of credit  agreement,
which will be reduced in amount as payments are made under the  equipment  lease
described in Note 5. In March 1999,  the Company sold all 125,000  shares of its
investment in IVAX resulting in net proceeds of approximately $1.6 million.

         PROJECTED RESULTS FROM OPERATIONS. The Company anticipates that it will
report a net loss of between  $9.0 and $11.0  million for the second  quarter of
1999. It will likely continue to incur quarterly net operating losses during the
second half of 1999, based upon several factors,  although, the projected losses
are expected to be in lesser  amounts.  The factors  included in assessing  the
projected losses include,  among others:  limited  projected  revenues;  current
manufacturing  limitations;  the timing and amount of milestone  payments  under
existing collaboration  agreements;  the timing and amount of up-front and other
payments under anticipated  license,  distribution,  marketing and collaboration
agreements, all as more completely discussed in the following paragraphs.

         As described above, quarterly operating results will be affected by the
revenue associated with the launch of Certiva(TM), which began during the middle
of the fourth quarter of 1998.  Revenues from the sale of Certiva(TM),  although
encouraging,  were  limited.  The reported net sales during the first quarter of
1999  and the  fourth  quarter  of 1998  were  approximately  $800,000  and $1.2
million,  respectively.  The Company  anticipates  growing but limited  revenues
during the remainder of 1999 as  Certiva(TM)  continues to be introduced to U.S.
pediatricians and other vaccine purchasers and as its acellular pertussis toxoid
is sold to SSI for further manufacturing and sale in SSI's Territory.  Moreover,
the Company  has  received  national  marketing  authorization  for the sale and
distribution  of its DTaP-IPV  vaccine in Germany,  and has  national  marketing
authorization  pending in Austria.  The Company is  presently  developing,  with
Chiron,  a product  launch  schedule for Germany,  which  should  contribute  to
further revenues during 1999. For the reasons described below, however, revenues
associated with  Certiva(TM)  sales and further  product  launches alone are not
expected to be sufficient to achieve profitability during 1999 and into 2000.

         As noted above, quarterly operating results will be affected by various
manufacturing  limitations.  The  Company's  manufacturing  facility has limited
production  capacity  based  on  the  present  size,  configuration,  equipment,
processes  and  methods  utilized  to  produce  Certiva(TM)  and  its  acellular
pertussis toxoid. In addition,  production expenses are mainly fixed and consist
primarily of expenses  relating to the operation of its production  facility and
maintaining  a ready  work  force.  Further,  from  time to  time,  the  Company
experiences disruptions and production failures.  These disruptions and failures
increase  unit  production  costs as units are lost in the  production  process.
These  factors have  contributed  to higher  production  costs for the Company's
acellular pertussis products,  which costs currently exceed their net realizable
value. These excess costs are expensed in the quarter incurred. Thus, during the
first  three  quarters  of 1999,  the  Company  expects  that  costs to  produce
Certiva(TM) and the acellular  pertussis toxoid will exceed their respective net
selling prices.



                                       17
<PAGE>

         In order to  address  these  production  limitations,  the  Company  is
modifying  its  existing  facilities  and  operations  in a manner  intended  to
significantly  expand  production  capacity and efficiency.  These  enhancements
began  during the first  quarter and are on track to be  completed  in the third
quarter  of 1999.  Following  completion  of  these  enhancements,  the  Company
believes  that the  manufacturing  facility  will have  substantially  increased
production  capacity  and  output,  that unit  production  costs will be reduced
significantly and that Certiva(TM) would be produced in sufficient quantities to
generate a gross profit based on current  known  pricing  arrangements,  current
competitive environment, and projected mix of customer purchases.

         Finally,  as noted above,  future operating  results are dependent upon
the amount and timing of further milestone and other payments under existing and
new license,  distribution or development  agreements.  During 1999, the Company
will be continuing its development efforts for several products, including those
covered by existing marketing,  license and research agreements. As noted above,
the Company is entitled  under  those  agreements  to  milestone  payments  upon
achievement  of prescribed  events.  In addition,  the Company is entitled to be
paid for  certain  prescribed  development  costs  as  incurred.  The  milestone
payments  under the  existing  agreements  are tied to measured  progress in the
regulatory  process  for the  Company's  combination  and group B  meningococcal
vaccines.  Although initial clinical  development  plans have been completed for
these products, and clinical trials are projected to commence during 1999, there
are no assurances that such milestone  events will occur during 1999, or at all,
or that any such payments will contribute  materially to quarterly net operating
results.

         In addition,  the Company is also in various stages of discussions with
third parties regarding various business  arrangements ranging from distribution
agreements  for  one  or  more  products  in  selected  markets,   collaboration
agreements for one or more products to expedite commercialization  timelines, to
joint ventures,  and business  combinations.  The Company has begun this process
with  the  intention  of   expeditiously   completing   one  or  more  of  these
arrangements.  There  are no  assurances  that  the  Company  will  successfully
negotiate and sign any such agreements or that, if executed, the financial terms
for any such agreement will be significant.

         The foregoing  paragraphs include forward looking statements  including
statements  as to:  revenue  projections,  earnings  (losses) and  likelihood of
further  regulatory  approvals;  the  ability  of  the  Company  to  timely  and
efficiently expand its production capacity and lower unit costs; and the ability
of the Company to address  production  failures,  among others. The factors that
affect the level of future  revenues  from product  sales  include,  among other
things, the ability of the Company and its distribution  partners to effectively
position the Company's products against competitive  products (including safety,
efficacy,  and  pricing),  the  Company's  ability to  manufacture  and  deliver
products in accordance  with customer  orders,  the timing and amount of product
orders,  and the timing of future product launches.  The factors that affect the
ability of the Company to timely and efficiently expand its production  capacity
include,  among others, the adequacy of engineering designs, the availability of
needed equipment,  the  manufacturing  experience with these  enhancements,  the
timeliness of regulatory review of modifications,  and the acceptability of such



                                       18
<PAGE>

modifications  to  the  applicable  regulatory  authorities.  There  can  be  no
assurances that the Company's plans to increase  production  capacity and output
will be effective or result in anticipated  production  efficiencies and reduced
unit cost or will be acceptable to any regulatory agency. In addition, there are
no  assurances  that  the  steps  taken by the  Company  to  address  production
disruptions and failures will be effective or that disruptions and failures will
not  continue in the future.  Production  disruptions  or failures  could have a
material  adverse  effect on the Company's  future  operating  results and could
affect the Company's  existing licenses as well as any applications for approval
for its products or the timing of such approval. No assurances can be given that
the  Company  will  be  successful  in  maintaining  consistent  and  continuous
commercial   production  of  its  products.   Further,   because  the  Company's
manufacturing  operations are located principally in one facility, any condition
or event that  adversely  affects the  condition or  operation of such  facility
would have a material  adverse affect on the Company's  financial  condition and
future results of operations.

         PROJECTED CASH  REQUIREMENTS FOR OPERATIONS.  The cash requirements for
operations  in the second  quarter of 1999 are projected to be between $11.0 and
$12.0 million, and between $36.0 and $42.0 million for 1999. This range could be
affected  by  possible   additional   cash   requirements   associated  with  an
acceleration  of the group C  meningococcal  vaccine  development  program.  The
second  quarter cash  requirement is anticipated to be higher than that incurred
in the first quarter of 1999 due primarily to the semi-annual  interest  payment
of $2.7 million on the 6.5% Notes and the approximately  $600,000 payment due on
the 4.5% Notes both to be paid in May 1999.  The foregoing is a forward  looking
statement and the factors  which affect the actual cash required for  operations
could  include,  among other things:  production  levels of vaccine  product for
commercial sale;  production of vaccine for clinical  investigations;  marketing
costs  associated  with the launch of  Certiva(TM)  in the United States;
regulatory  authorization to commence  clinical  investigations;  timing for the
commencement of planned clinical  trials;  and the level of expenditures for the
Company's  ongoing  research  and  development   program,   which  includes  the
acceleration  of  the  group  C  meningococcal  vaccine  program.  See  "Funding
Sources," below.

         CAPITAL EXPENDITURES.  Total capital expenditures for the first quarter
of 1999 were $1.4 million which includes a $260,000 capital lease for equipment.
As noted  above,  the  Company  is  expanding  its  manufacturing  capacity  and
efficiency  for its acellular  pertussis  toxoid and  Certiva(TM).  Total
projected  capital  expenditures  for  the  remainder  of 1999  for  facilities,
modifications,  equipment,  systems  and other  capital  additions  could  range
between $2.5 million to $3.5 million, before giving effect to possible equipment
additions that may be required for the acceleration of the group C meningococcal
vaccine program. The foregoing include forward looking statements. The amount of
and timing  for  capital  expenditures  could  fluctuate  based upon a number of
factors including, without limitation, the equipment purchases required in order
to expand  the  Company's  production  capacity;  and the  amount  and timing of
unanticipated costs to replace or repair existing equipment and systems in order
to keep facilities operational and in compliance with regulatory requirements.

         FUNDING  SOURCES.  To  maintain  the  Company's  production,  research,
development  and growth at current  levels,  present cash and cash  equivalents,
expected  product sales of Certiva(TM)  and the Company's  other  products,  and
revenues from existing collaborative agreements are not expected to provide



                                       19
<PAGE>

sufficient  cash to fund the  Company's  operations,  debt service  payments and
capital  expenditures  for the  remainder  of 1999 and into  2000.  Accordingly,
management has adopted and is  implementing  programs to reduce net cash used in
operations.  These programs are designed to cut costs, more efficiently  utilize
space,  and  enhance  the  potential  for  increased  revenue  through  expanded
production  capacity,  among other  things.  More than  fifteen  areas have been
identified to achieve cost savings  opportunities  and spending  plans have been
adjusted accordingly to reduce the net cash used in operations. The Company will
be reducing its facilities  costs by exercising an early lease  cancellation for
unneeded office and warehouse space, and more efficiently utilizing the space in
the Company's  other  facilities.  On the funding side, the Company  intends to:
enter into new license,  marketing,  distribution and/or development  agreements
that are currently under active discussion;  enter into a sale and lease-back of
the Company's one owned facility;  and obtain one or more lines of credit, which
may be secured by accounts receivable, inventory or other assets of the Company.
The Company  believes  that it may meet 1999 cash  requirements  for  operations
through these  efforts,  although  there are no  assurances in this regard.  The
foregoing  include  forward  looking  statements,  and  the  factors  that  will
determine whether the Company will require additional  funding include,  without
limitation,  the amount and  timing of product  sales,  the amount and timing of
payments  under  existing and new  collaborative  agreements  and the amount and
timing of any proceeds from other previously identified funding sources.

         If the  Company is unable to  complete  the  transactions  noted  above
and/or  proceeds  from the  transactions  are  inadequate,  the Company would be
required to obtain  additional  funding  through the sale of debt and/or  equity
securities and/or reduce cash  requirements  through  significant  reductions in
operating  levels.  There can be no assurances  that the Company will be able to
obtain debt or equity  financing  on favorable  terms or in amounts  required to
meet future cash  requirements,  or that the  Company,  if  necessary,  would be
successful in reducing  operating  levels or effectively  controlling  costs, or
that if  operating  levels are  reduced,  the Company  would be able to maintain
operations for any extended period of time.

         The  foregoing  paragraphs  contain only a partial  description  of the
factors  affecting the Company's  business  prospects and risk factors affecting
future  operations.  Reference is made to the risk factors and other information
described  elsewhere in this  management's  discussion and analysis of financial
condition and results of operations,  including in the first  paragraph  hereof,
and in the Company's other filings with the SEC, for a more complete description
of the risks and uncertainties affecting the Company and its business.

TAX AND OTHER MATTERS
---------------------

         At December 31, 1998, the Company and its  subsidiaries  had income tax
loss carry  forwards of  approximately  $30.0 million to offset future  Canadian
source  income and  approximately  $94.7  million to offset future United States
taxable  income  subject  to the  alternative  minimum  tax rules in the  United
States.

         If more than a certain  percentage  of the  Company's  assets or income
becomes  passive,  the Company  will be  classified  for U.S.  tax purposes as a



                                       20
<PAGE>

passive foreign investment company ("PFIC"),  and a U.S. taxpayer may be subject
to an additional  Federal  income tax on receiving  certain  dividends  from the
Company  or  selling  the  Company's  Common  Stock.  The  Company  has not been
classified  as a PFIC to date,  and it  intends  to, and  believes  that it can,
generate  sufficient other income to avoid being classified as a PFIC. This is a
forward looking statement and the factors affecting this classification include,
among other  things,  the timing and amount of revenue from product  sales;  the
timing and amount of license fees,  milestone  payments and development  funding
under  license,   marketing,   distribution  and  development  agreements;   the
classification of payments received by the Company as active or passive; and the
classification of the Company's assets as active or passive.

         In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related  Information." The Company implemented SFAS No. 131
for the year ended December 31, 1998 and has  determined  that it currently does
not  have  reportable  segments.   Product  sales  in  the  United  States  were
approximately  $796,000 and $0 for the  quarters  ended March 31, 1999 and 1998,
respectively.  Product sales to Europe were approximately  $363,000 and $263,000
for the quarters ended March 31, 1999, and 1998, respectively.  All products are
currently  being  manufactured  at the Company's one production  facility in the
United  States.  The production  process,  and ultimately  product  costing,  is
primarily the same for all of the Company's acellular pertussis vaccine products
sold in the  United  States  and  Europe.  Because  of  this,  and the  relative
consistency in selling prices, as well as the nature of the distribution methods
utilized by the  Company,  the  Company  does not  differentiate  and manage its
business along geographic lines.

IMPACT OF THE YEAR 2000 ISSUE ON THE COMPANY
--------------------------------------------

         The Year 2000 issue is the result of some computers, software and other
equipment,  including  computer code, in which calendar year data is abbreviated
to only two digits.  Management has initiated a company-wide  program to prepare
the Company's  information systems for the year 2000. Based on a recent internal
interim  assessment,   the  Company  believes  that  the  principal   management
information  system software that is currently being  implemented is designed to
be Year 2000 compliant.  However, there can be no assurances in this regard. The
Company  intends to test the system for Year 2000  compliance.  The Company also
uses various "off the shelf" software  applications for the storage and analysis
of various  types of data and systems.  Management is dependent on this software
for day-to-day operations. The Company has substantially completed the inventory
of its  information  technology  and  date-sensitive  systems.  The  Company  is
currently  completing  the  assessment  phases and has  commenced  the  required
remediation of noncompliant systems to achieve Year 2000 qualification.  This is
an ongoing  process and the Company is unable at this time to assess the impact,
if any,  this  program  might  ultimately  have  on the  Company's  systems  and
operations or its future financial position or results of operations.

         The Company has not communicated with all of its significant  suppliers
to determine  the extent to which the Company is  vulnerable to failures by such
third parties to remediate their own Year 2000 issues.  The Company has not been
advised by its  suppliers  that  costs to obtain  Year 2000  compliance  will be
passed on to the Company;  however,  there can be no assurances  that such costs


                                       21
<PAGE>


will not be passed through to the Company  either  directly or indirectly or, if
passed  through to the Company,  the magnitude of such  charges.  The systems of
other companies on which the Company's systems rely may not be timely converted.
Accordingly,  there are no assurances that the failure by such other  companies'
systems  to achieve  Year 2000  qualification,  or  qualify in a manner  that is
compatible to Company  systems,  would not have a material adverse effect on the
Company.  The Company intends to develop  contingency plans for various possible
scenarios.

         The Company  has  determined  that it has no exposure to  contingencies
related to the Year 2000 Issue for product it has sold. Based on the preliminary
internal  assessment,  the  Company has not  identified  any  material  costs or
expenditures  specifically  related to modifications of information  systems for
Year 2000  compatibility.  This  internal  assessment  is a continuing  process,
consequently there can be no assurances that the Company will not be required to
expend  significant  amounts on achieving Year 2000  qualification  or that such
expenditures  will not have a material  adverse  affect on future  results  from
operations or financial condition.

         The foregoing  paragraphs  contain forward  looking  statements and the
factors affecting the impact of Year 2000 on the Company include,  among others,
the availability and cost of programming and testing resources, vendors' ability
to modify proprietary software, unanticipated problems identified in the ongoing
compliance  assessment,  and  compliance of material  third party  suppliers and
vendors.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         ----------------------------------------------------------

         The Company  does not have  significant  exposure to changing  interest
rates on invested cash at March 31, 1999. The Company  invests in U.S.  Treasury
bills and investment grade commercial paper that have maturities of three months
or  less.  As a  result,  the  interest  rate  market  risk  implicit  in  these
investments  at March 31, 1999, is low, as the  investments  mature within three
months.

         The Company had $25 million of 4.5% Convertible  Secured Notes at March
31, 1999, which bear interest at 4.5% per annum and mature in November 2003. The
Company does not have significant exposure to changing interest rates related to
the 4.5% Notes because the interest rate on these notes is fixed.

         The Company had $83.7 million of 6.5% Convertible Subordinated Notes at
March 31,  1999,  which bear  interest at 6.5% per annum and mature in May 2003.
The  Company  does not have  significant  exposure to  changing  interest  rates
related to the 6.5% Notes because the interest rate on these notes is fixed.

         The Company has not  undertaken  any actions to cover  interest  market
risk and is not a party to any interest rate market risk management activities.



                                       22
<PAGE>

         A hypothetical ten percent change in the market interest rates over the
next year would not materially impact the Company's earnings or cash flow as the
interest  rates on the Company's  long-term  convertible  debt are fixed and its
cash investments are short term. A hypothetical ten percent change in the market
interest rate over the next year, by itself,  would not have a material  adverse
effect on the fair  value of the  Company's  long-term  convertible  debt or its
short-term cash investments.

         The Company does  principally all of its  transactions in U.S.  dollars
and currently has limited payment  obligations in Swedish Krona;  however,  such
obligations are not material to the Company's operations.



                                       23
<PAGE>


                           PART II. OTHER INFORMATION



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

The Company's 1999 Annual Meeting of Shareholders was held on February 23, 1999.
The matters voted on and approved by the  shareholders at the meeting,  together
with a tabulation of the respective votes, are as follows:

1.    ELECTION OF DIRECTORS.  The  following  individuals  were elected,  by the
      following  votes, to serve  as the  directors  of the  Company  until  the
      Company's next annual meeting of  shareholders,  or until their respective
      successors are duly elected and qualified or until their prior resignation
      or removal:

                  Name                 For        Withheld
                  ----                 ---        --------

              Neil Flanzraich      28,650,520     330,265
              Francesco Bellini    28,650,520     330,265
              Phillip Frost        28,650,520     330,265
              Alain Cousineau      28,650,520     330,265
              Jonathan Deitcher    28,650,520     330,265
              Denis Dionne         28,650,520     330,265
              Gervais Dionne       28,650,520     330,265
              Lyle Kasprick        28,650,520     330,265
              Francois Legault     28,650,520     330,265
              Richard Pfenniger    28,650,520     330,265
              Randal Chase         28,650,520     330,265


              There were no broker  non-votes or  abstentions in the election of
              directors. These individuals constitute the Company's entire Board
              of Directors.

2.    APPROVAL OF THE COMPANY'S 1999 NON-EMPLOYEE  DIRECTOR AND SENIOR EXECUTIVE
      STOCK OPTION PLAN.  The Company's  1999  Non-Employee  Director and Senior
      Executive Stock Option Plan was duly approved by the following vote:

                       For             Against        Abstain   Broker Non-Votes
                       ---             -------        -------   ----------------
                   27,952,243          712,994        315,548          N/A





                                       24
<PAGE>


3.    APPOINTMENT  OF  ACCOUNTANTS.  Arthur  Andersen LLP was duly  appointed as
      independent public accountants of the Company for the year ending December
      31, 1999, by the following vote:

                                              For          Against     Abstain
                                              ---          -------     -------

Appointment of Arthur Andersen LLP        27,889,040       48,252      33,493
as independent public accountants
of the Company

There were no broker  non-votes in the  appointment  of the  independent  public
accountants.

ITEM 5.   OTHER INFORMATION
          -----------------

          None.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------

          (a)  Exhibits
               --------

               Exhibit No.    Description
               -----------    -----------

               27             Financial Data Schedule
               --

          (b)  Reports on Form 8-K
               -------------------

               On February 1, 1999,  the Company filed with the  Securities  and
               Exchange  Commission  a Current  Report on Form 8-K under  Item 5
               reporting  that the German  regulatory  authorities  had issued a
               national  marketing  authorization  for  the  Company's  DTaP-IPV
               vaccine.



                                       25
<PAGE>


                                   SIGNATURES
                                   ----------

          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                          NORTH AMERICAN VACCINE, INC. 
                                          ----------------------------
                                                  (Registrant)


                                          By:   /s/ Randal D. Chase            
                                                -------------------------
                                                Randal D. Chase, Ph.D.
                                                President and Chief
                                                  Executive Officer


                                          By:   /s/ Lawrence J. Hineline
                                                ------------------------  
                                                Lawrence J. Hineline
                                                Vice President - Finance



Date: April 23, 1999