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 SEPTEMBER 30, 1996

                                       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.)

12103 INDIAN CREEK COURT, BELTSVILLE, MARYLAND                     20705
----------------------------------------------                  ----------
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:  (301) 470-6100
--------------------------------------------------------------------------------
(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 NOVEMBER 11, 1996 -- 31,258,833
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 Statement of Shareholders' Equity............   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.............  12


PART II.    OTHER INFORMATION

Item 5.     Other Information.........................................  20

Item 6.     Exhibits and Reports on Form 8-K..........................  21


SIGNATURES............................................................  22




                                     - 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,  1995.  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
period  reported have been made.  Results of  operations  for the three and nine
months ended  September  30, 1996,  will not  necessarily  be  indicative of the
results for the entire fiscal year ending December 31, 1996.










                                     - 3 -
<PAGE>

<TABLE>
<CAPTION>


NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                                                                     SEPTEMBER 30,        DECEMBER 31,
                                                                                         1996                 1995
                                                                                   ------------------   -----------------
                                                                                      (UNAUDITED)

<S>                                                                                          <C>                 <C>    
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                                               $   81,881         $    10,443
  Accounts receivable                                                                              -               2,000
  Prepaid expenses and other current assets                                                    2,009               1,067
                                                                                          -----------        ------------
          Total current assets                                                                83,890              13,510

Property, plant and equipment, net                                                            17,769              18,121
Investment in affiliate, at market                                                             2,031               9,065
Other assets                                                                                     529                 553
Deferred financing costs, net                                                                  3,309                   -
                                                                                          -----------        ------------
     Total assets                                                                         $  107,528         $    41,249
                                                                                          ===========        ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                                        $    1,734         $     3,550
  Other current liabilities                                                                    6,797               4,296
                                                                                          -----------        ------------
         Total current liabilities                                                             8,531               7,846

Deferred rent credit, net of current portion                                                     137                 205

6.50% Convertible subordinated notes, due May 1, 2003                                         86,250                   -
                                                                                          -----------        ------------
     Total liabilities                                                                        94,918               8,051

SHAREHOLDERS' EQUITY:
 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 in liquidation                                                                  6,538               6,538
                             
 Common stock, no par value;  unlimited  shares  authorized;  issued  30,906,547
    shares at September 30, 1996 and 30,186,711 shares at December 31, 1995                   63,239              58,474
                                                                           
 Unrealized investment holding gain                                                            1,403               7,466
                                    
 Accumulated deficit                                                                         (58,570)            (39,280)
                                                                                          -----------        ------------
         Total shareholders' equity                                                           12,610              33,198
                                                                                          -----------        ------------

     Total liabilities and shareholders' equity                                           $  107,528         $    41,249
                                                                                          ===========        ============

The accompanying notes are an integral part of these condensed consolidated financial statements.

</TABLE>

                                     - 4 -
<PAGE>

<TABLE>
<CAPTION>

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

                                                             THREE MONTHS                               NINE MONTHS
                                                                 ENDED                                     ENDED
                                                             SEPTEMBER 30,                             SEPTEMBER 30,
                                                     1996                 1995                 1996                  1995
                                                ----------------   --------------------  ------------------   --------------------

<S>                                                   <C>                    <C>                <C>                   <C> 
 SALES                                                $       -              $       -          $      727            $         -
                                                ----------------   --------------------  ------------------   --------------------

 OPERATING EXPENSES:
     Production                                           4,058                  1,376              10,754                  3,578
     Research and development                             2,560                  3,269               8,126                  7,311
     General and administrative                           1,599                  1,489               4,826                  4,096
                                                ----------------   --------------------  ------------------   --------------------
           Total  operating expenses                      8,217                  6,134              23,706                 14,985
                                                ----------------   --------------------  ------------------   --------------------

 OPERATING LOSS                                          (8,217)                (6,134)            (22,979)               (14,985)

 OTHER INCOME:
     Gain on sale of investment in affiliate                  -                      -               4,228                 10,929
     Interest and dividend income                         1,075                    209               1,917                    654
     Interest expense                                    (1,531)                     -              (2,456)                     -
                                                ----------------   --------------------  ------------------   --------------------
 NET LOSS                                               ($8,673)               ($5,925)           ($19,290)               ($3,402)
                                                ================   ====================  ==================   ====================

 NET LOSS PER SHARE                                      ($0.28)                ($0.20)             ($0.63)                ($0.11)

 WEIGHTED-AVERAGE NUMBER OF COMMON           
     SHARES OUTSTANDING                                  30,769                 29,811              30,600                 29,625

The accompanying notes are an integral part of these condensed consolidated financial statements.

</TABLE>


                                     - 5 -
<PAGE>


<TABLE>
<CAPTION>

NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)


                                                                                                     
                                            SERIES A                                    UNREALIZED                            
                                          CONVERTIBLE                                    INVEST-                         TOTAL 
                                        PREFERRED STOCK            COMMON STOCK            MENTG         ACCUM-          SHARE- 
                                     -----------------------  -----------------------    HOLDING         ULATED         HOLDERS'
                                      SHARES       AMOUNT      SHARES       AMOUNT        GAINS          DEFICIT         EQUITY
                                     ----------  -----------  ---------   -----------  -------------  --------------  -------------

<S>                                      <C>         <C>        <C>          <C>             <C>          <C>              <C>
Balance, December 31, 1995               2,000       $6,538     30,187       $58,474         $7,466        ($39,280)       $33,198

Exercises of stock options                   -            -        711         4,634              -               -          4,634
Shares issued under
  401(k) plan                                -            -          9           131              -               -            131
Realized investment holding gain             -            -          -             -         (4,228)              -         (4,228)
Decrease in market value
  of investment                              -            -          -             -         (1,835)              -         (1,835)
Net loss                                     -            -          -             -              -         (19,290)       (19,290)
                                     ----------  -----------  ---------   -----------  -------------  --------------  -------------
Balance, September 30, 1996              2,000       $6,538     30,907       $63,239         $1,403        ($58,570)       $12,610
                                     ==========  ===========  =========   ===========  =============  ==============  =============

The accompanying notes are an integral part of these condensed consolidated financial statements.

</TABLE>


                                     - 6 -
<PAGE>

<TABLE>
<CAPTION>


NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)                                                                                       NINE MONTHS
                                                                                                     ENDED
                                                                                                 SEPTEMBER 30,
                                                                                          1996                  1995
                                                                                    ------------------   -------------------

<S>                                                                                         <C>                    <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                                ($19,290)              ($3,402)
    Adjustments to reconcile net loss to net cash used
    in operating activities:
          Gain on sale of investment in affiliate                                             (4,228)              (10,929)
          (Gain) loss on disposal of equipment                                                   (15)                   26
          Depreciation and amortization                                                        3,697                 1,022
          Amortization of deferred financing costs                                               210                     -
          Contribution of common stock to 401(k) plan                                            131                    94
          Decrease (increase) in other assets                                                     24                  (194)
          Decrease in deferred rent                                                              (60)                  (56)
          Cash flows provided by other working capital items                                   1,735                   274
                                                                                    ------------------   -------------------
              Net cash used in operating activities                                          (17,796)              (13,165)
                                                                                    ------------------   -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                                                      (3,345)               (8,754)
    Proceeds from sale of investment in affiliate                                              5,199                11,502
    Proceeds from sale of equipment                                                               15                     -
                                                                                    ------------------   -------------------
              Net cash provided by investing activities                                        1,869                 2,748
                                                                                    ------------------   -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of convertible debt                                                86,250                     -
    Proceeds from exercises of stock options                                                   4,634                 1,210
    Deferred financing costs                                                                  (3,519)                    -
                                                                                    ------------------   -------------------
              Net cash provided by financing activities                                       87,365                 1,210
                                                                                    ------------------   -------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                          71,438                (9,207)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                10,443                20,922
                                                                                    ------------------   -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                     $81,881               $11,715
                                                                                    ==================   ===================

The accompanying notes are an integral part of these condensed consolidated financial statements.

</TABLE>

                                     - 7 -
<PAGE>

<TABLE>
<CAPTION>


NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
                                                                                               NINE MONTHS
                                                                                                  ENDED
                                                                                              SEPTEMBER 30,
                                                                                      1996                  1995
                                                                                ------------------   --------------------

<S>                                                                                     <C>                      <C> 
CASH FLOWS PROVIDED BY OTHER WORKING CAPITAL ITEMS:

    Decrease (increase) in:
          Accounts receivable                                                            $  2,000                $     -
          Prepaid expenses and other current assets                                          (943)                  (643)

    Increase (decrease) in:
          Accounts payable                                                                 (1,816)                  (646)
          Other current liabilities                                                         2,494                  1,563
                                                                                ------------------   --------------------
    Net cash provided by other working capital items                                     $  1,735                $   274
                                                                                ==================   ====================


</TABLE>


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash  paid  for  interest  was $9 and $0  through  September  30,  1996 and 1995
respectively.

The accompanying notes are an integral part of these condensed consolidated
financial statements.


                                     - 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  and production of vaccines
for the prevention of infectious  diseases in children and adults.  In the first
quarter of 1996, the Swedish Medical Products Agency granted regulatory approval
of the Company's  acellular  pertussis vaccine  formulated as a DTaP vaccine for
the prevention of diphtheria,  tetanus and pertussis  (whooping  cough).  In the
third quarter of 1996, the Danish  National  Board of Health granted  regulatory
approval of a combined  DTaP-IPV (polio)  vaccine.  The Company has not received
approval  from  the  U.S.  Food and Drug  Administration  ("FDA")  or any  other
regulatory  authority  to  market  its DTaP  vaccine  or any  other  product  in
development.

2.  SIGNIFICANT ACCOUNTING POLICIES

(A) BASIS OF ACCOUNTING AND CURRENCY.  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, as discussed in
Note 3.  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) PRODUCT SALES. 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) DEFERRED FINANCING COSTS.  Deferred financing costs represent fees and other
costs incurred in connection  with the issuance of long-term  debt.  These costs
are  amortized  over the term of the related debt using the  effective  interest
rate method.



                                     - 9 -

<PAGE>



3.  INVESTMENTS IN AFFILIATES


In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity  Securities,"  equity  securities  classified as  available-for-sale  are
reported at fair value,  with unrealized gains and losses reported in a separate
component of shareholders' equity.

At December 31,  1995,  the Company  owned  318,084  shares of IVAX  Corporation
("IVAX") common stock.  The market values of these  securities,  as shown on the
accompanying  consolidated  balance sheets,  have been  determined  based on the
closing prices for registered securities of IVAX as of those dates. In the first
quarter of 1996,  the Company  sold  193,084  shares of its  investment  in IVAX
common stock  generating  approximately  $5.2 million in proceeds and a realized
gain of $4.2 million.  The market value of the  Company's  investment in IVAX at
November 11, 1996 was approximately  $1.6 million.  These investment  securities
are volatile and therefore subject to significant fluctuations in value.

4.  OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following components:

                                               September 30,    December 31,
                                                   1996            1995
                                               -------------    ------------
                                                       (in thousands)
Accrued interest payable                        $ 2,237         $     -
Payroll and fringe benefits                       1,486              736
Reserve for contract loss                           720              720
Accrued taxes                                       607              633
Accrued costs of clinical trials                    517              574
Accrued consulting and professional fees            423              767
Accrued construction costs                          316              310
Deferred rent credit                                 93               85
Other accrued liabilities                           398              471
                                               --------          -------
Total other current liabilities                 $ 6,797           $4,296
                                                =======           ======


                                     - 10 -
<PAGE>


5.  LONG-TERM DEBT

In May 1996, the Company completed an offering of 6.50% convertible subordinated
notes in the  principal  amount  of  $86.25  million  due May 1,  2003.  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 of each year, commencing
November 1, 1996. The notes are convertible into common shares of the Company at
any time after August 5, 1996, at the initial  conversion price of approximately
$24.86 per common share. The notes are subordinated to present and future senior
indebtedness  of the  Company and will not  restrict  the  incurrence  of future
senior or other indebtedness by the Company. The notes 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 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 common shares.

6.   SUBSEQUENT EVENTS

In the fourth quarter,  the Company and Abbott Laboratories  ("Abbott") signed a
definitive  agreement  under which Abbott would market  CERTIVA(TRADEMARK),  the
Company's DTaP vaccine,  when approved by the FDA. The marketing  agreement also
will allow Abbott to market the Company's  DTaP-HIB,  DTaP-IPV and  DTaP-IPV-HIB
combination vaccines which are under development.

Abbott  will  market  CERTIVA(TRADEMARK)  and  combination  vaccines  to private
physicians  and managed care markets in the United  States for  immunization  of
infants  and  children.  The  Company  will  market  CERTIVA(TRADEMARK)  and the
combination vaccines to government  purchasers,  including state governments and
the Centers for Disease Control and Prevention.

On execution of the  agreement,  the Company  received $13 million of which $6.3
million  represented  payment for 350,000 shares of the Company's  common stock,
and the balance represented a marketing fee and a clinical  development payment.
The Company and Abbott  will  collaborate  in the  clinical  development  of the
combination   vaccines  and  Abbott  will  provide  the  Company  with  clinical
development  funding.  The Company will receive  payments  upon  achievement  of
prescribed  milestones.  The agreement  provides for total payments of up to $42
million  by  Abbott.   The  first   milestone   relates  to  FDA   approval   of
CERTIVA(TRADEMARK) provided certain other conditions are satisfied. In addition,
the Company will receive revenues from Abbott as it purchases CERTIVA(TRADEMARK)
and the combination vaccine products for resale to the private pediatric market.

In the fourth quarter,  the Company acquired a 35,000 square foot  manufacturing
facility in  Beltsville,  Maryland.  The  acquisition  included the purchase and
lease of equipment  and  leasehold  improvements  and the  assumption  of a real
estate lease. The total acquisition cost was approximately $24.9 million,  which
included  a cash  payment  of $17.2  million.  The  balance  of $7.7  million is
represented by an equipment  lease  obligation  which expires in 2000. The lease
will be accounted for as a capital lease for financial reporting purposes,  with
monthly payments of approximately $179,000. In addition, the Company has assumed
the real estate lease  underlying the facility,  which is scheduled to expire in
2000, but may be extended  through 2010. Under the terms of the equipment lease,
the Company has a buyout option at the end of the third year for a predetermined
amount,  and an option at the end of the fourth  year at the greater of the fair
market value of the  equipment or a  predetermined  amount.  Under the equipment
lease  agreement  there are  financial  covenants  that  obligate the Company to
maintain  certain minimum cash and investment  balances,  a minimum tangible net
worth and certain other financial ratios.  The Company would be required to post
an irrevocable  letter of credit for  predetermined  amounts at such time as the
Company is not in compliance with any of these financial covenants.

                                     - 11 -
<PAGE>



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

BACKGROUND

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

     In 1995, the Company recognized development revenues pursuant to agreements
with   Pasteur-Merieux   Serums  et  Vaccins,   a  wholly-owned   subsidiary  of
Rhone-Poulenc,  which operates in North America through its subsidiary Connaught
Laboratories ("Pasteur Merieux-Connaught"),  under which the Company and Pasteur
Merieux-Connaught  will jointly  develop the Company's  meningococcus B vaccine.
Additional  funding may be provided to the Company by Pasteur  Merieux-Connaught
under the terms of the clinical development agreement.  See "Outlook;  Liquidity
and Capital Resources," below.

     In  February  1996,  the  Swedish  Ministry  of Health  granted  regulatory
approval to market the Company's  acellular  pertussis  vaccine  formulated as a
combined DTaP vaccine for the prevention of diphtheria,  tetanus,  and pertussis
(whooping cough). This marketing authorization was the first regulatory approval
for  any of the  Company's  products.  Under a  supply  agreement,  the  Company
manufactures the acellular component of the vaccine,  and Statens  Seruminstitut
("SSI")  manufactures the diphtheria and tetanus  components and will market and
distribute the DTaP vaccine in Sweden,  as well as, upon receipt of any required
regulatory approvals,  other countries comprising SSI's territory.  In September
1996,  the Danish  National  Board of Health  granted  regulatory  approval of a
combined  DTaP-IPV (polio) vaccine for all primary and booster doses for infants
and children in Denmark. This combination vaccine,  which includes the Company's
acellular pertussis vaccine,  was developed jointly by SSI and the Company.  The
Company filed a product license  application  with the FDA in September 1995 for
approval to market  CERTIVA(TRADEMARK),  the Company's DTaP vaccine.  On October
29, 1996,  the FDA's  Advisory  Committee  on Vaccines  and Related  Biologicals
reviewed the clinical  data on  CERTIVA(TRADEMARK),  which data was submitted in
the application. See "Outlook; Liquidity and Capital Resources," below.

     The Company had 196 and 155  full-time  employees as of September  30, 1996
and 1995, respectively.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

     Production  expenses  were $4.1 million in 1996 compared to $1.4 million in
1995.   The  increase  in  these  expenses  in  1996  is  due  to  increases  in
depreciation,  materials,  and labor,  as the Company  prepares  for  regulatory
approval of  CERTIVA(TRADEMARK) in the United States. The increase in labor cost
is  attributable  primarily  to an  increase  in the  number  of  employees.  In
addition,  facility  costs  increased  in 1996  over  1995 due to the  Company's
placing in service its expanded  production  facility  and its adjacent  support
facility.

                                     - 12 -
<PAGE>


     Research and  development  expenses  decreased to $2.6 million in 1996 from
$3.3 million in 1995. The decrease is  attributable  primarily to lower clinical
testing and related expenses.

     General and  administrative  expenses were $1.6 million in 1996 as compared
to $1.5 million in 1995. The increase is primarily due to higher labor costs and
supplies  due to  increased  number  of  employees,  offset  in part by  reduced
marketing and consulting fees.

     Interest  and  dividend  income  increased  to $1.1  million  in 1996  from
$209,000 in 1995.  This  increase is due  primarily to higher cash balances as a
result of the placement of $86.25 million convertible  subordinated notes in May
1996. See "Outlook; Liquidity and Capital Resources" below.

     Interest  expense  in 1996  was $1.5  million  due to the  issuance  of the
convertible subordinated notes.

     The factors cited above resulted in a net loss of $8.7 million or $0.28 per
share in 1996 as  compared  to a net loss of $5.9  million or $0.20 per share in
1995.  The  weighted-average  number  of common  and  common  equivalent  shares
outstanding  was 30.8 million for 1996  compared to 29.8  million for 1995.  The
increase  in the  number  of  weighted-average  shares  outstanding  for 1996 as
compared to 1995 is attributable primarily to the exercises of stock options.

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

     In 1996, the Company  recognized  $727,000 of revenue from product sales of
its acellular pertussis vaccine.

     Production  expenses were $10.8 million in 1996 compared to $3.6 million in
1995.   The  increase  in  these  expenses  in  1996  is  due  to  increases  in
depreciation,  materials,  and labor,  as the  Company  produces  the  acellular
pertussis vaccine for European distribution and prepares for regulatory approval
of  CERTIVA(TRADEMARK)  in the  United  States.  The  increase  in labor cost is
attributable  primarily  to an increase  in number of  employees.  In  addition,
facility  costs  increased  in 1996 over 1995 due to the  Company's  placing  in
service its expanded production facility and its adjacent support facility.

     Research and  development  expenses  increased to $8.1 million in 1996 from
$7.3  million in 1995.  The total  year to date  increase  represents  primarily
clinical  testing and related  expenses as the Company expanded its clinical and
regulatory affairs operations.

     General and  administrative  expenses were $4.8 million in 1996 as compared
to $4.1 million in 1995.  The increase is primarily  due to a greater  number of
employees and related use of supplies.

     In 1996 the Company sold 193,084  shares of its  investment  in  affiliate,
which generated  proceeds of  approximately  $5.2 million and a realized gain of
$4.2 million or $0.14 per share. In 1995, the Company sold 695,936 shares of its
investment in an affiliate,  which  generated  proceeds of  approximately  $11.5
million, and a realized gain of $10.9 million or $0.37 per share.

                                     - 13 -
<PAGE>


     Interest  and  dividend  income  increased  to $1.9  million  in 1996  from
$654,000 in 1995.  This  increase is due  primarily to higher cash balances as a
result of the placement of $86.25 million convertible  subordinated notes in May
1996. See "Outlook; Liquidity and Capital Resources" below.

     Interest  expense  in 1996  was $2.5  million  due to the  issuance  of the
convertible subordinated notes.

     The factors  cited above  resulted in a net loss of $19.3  million or $0.63
per share in 1996 as compared to net loss of $3.4  million or $0.11 per share in
1995. Without the gains on the sales of investment  securities in 1996 and 1995,
the net  losses  per share for 1996 and 1995 would have been $0.77 and $0.48 per
share, respectively. The weighted-average number of common and common equivalent
shares  outstanding was 30.6 million for 1996 compared to 29.6 million for 1995.
The increase in the number of  weighted-average  shares  outstanding for 1996 as
compared to 1995 was attributable primarily to the exercises of stock options.

OUTLOOK; LIQUIDITY AND CAPITAL RESOURCES

     THE FOLLOWING  PARAGRAPHS IN THIS FORM 10-Q CONTAIN CERTAIN FORWARD LOOKING
STATEMENTS,  WHICH  ARE MADE  PURSUANT  TO THE  SAFE  HARBOR  PROVISIONS  OF THE
SECURITIES  LITIGATION  REFORM ACT OF 1995.  THESE  FORWARD  LOOKING  STATEMENTS
INCLUDE,  WITHOUT  LIMITATION,  THOSE  REGARDING THE  PROSPECTS  FOR  REGULATORY
APPROVAL  AND THE  NEED FOR  FURTHER  CLINICAL  EVALUATION,  THE  PROSPECTS  FOR
MARKETING AND  DISTRIBUTION OF VACCINE  PRODUCTS,  ASSESSMENTS OF REGULATORY AND
ADVISORY  COMMITTEE  REVIEWS OF THE COMPANY'S  AND  COMPETITORS'  PRODUCTS,  THE
PROSPECTS  FOR  AND  FACTORS   AFFECTING  FUTURE  REVENUES  AND   PROFITABILITY,
LIKELIHOOD  OF  ADDITIONAL   FUNDING  UNDER   DISTRIBUTION   AND   COLLABORATION
AGREEMENTS,  CASH  REQUIREMENTS  FOR FUTURE  OPERATIONS,  AND PROJECTED  CAPITAL
EXPENDITURES.  READERS ARE CAUTIONED  THAT FORWARD  LOOKING  STATEMENTS  INVOLVE
RISKS,  UNCERTAINTIES  AND FACTORS WHICH 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 BY THE FDA; THE
PRODUCTION OF VACCINES;  THE NATURE OF  COMPETITION;  EFFECTIVE  MARKETING;  AND
UNCERTAINTIES  RELATING TO CLINICAL  TRIALS,  ALL AS DISCUSSED IN THE  COMPANY'S
PREVIOUS FILINGS WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.

     In February 1996, the Swedish Medical  Products  Agency granted  regulatory
approval to market the Company's  acellular  pertussis  vaccine  formulated as a
combined DTaP vaccine for all primary and booster doses.  In September 1996, the
Danish  National  Board of Health  granted  regulatory  approval  of a  combined
DTaP-IPV  (polio)  vaccine for all  primary  and  booster  doses for infants and
children in Denmark.  This  combination  vaccine,  which  includes the Company's
acellular pertussis vaccine,  was developed jointly by SSI and the Company.  SSI
markets the DTaP vaccine in Sweden, and the DTaP-IPV vaccine in Denmark, and has
indicated that it will file additional  applications for the acellular pertussis
vaccine,  both alone and in combination with other antigens,  in other countries
within its  territory.  There can be no assurance  given that SSI will file such
additional applications or that, if filed, such applications will be approved by
the appropriate regulatory authorities.

     Following  the  regulatory   approval  described  above,  the  Company  has
recognized  $727,000 in revenues from sale of its acellular  pertussis  vaccine.
Additional  revenues  from such  product  sales are  dependent  upon  successful
commercialization  of the DTaP  vaccine  in Sweden and the  DTaP-IPV  vaccine in
Denmark and  additional  product  approvals of acellular  pertussis  products in
other  countries.  The Company does not control the marketing  and  distribution
efforts of SSI in its  territory  and,  therefore,  the  Company's  revenues for
product sales in that territory are dependent upon  effective  sales,  marketing
and  distribution  efforts of SSI.  There are no  assurances  if or when further
product approvals will be obtained,  or that the DTaP and DTaP-IPV vaccines will
be marketed and distributed effectively.


                                     - 14 -
<PAGE>



     On October 29, 1996, the Food and Drug  Administration's  ("FDA")  Vaccines
and  Related  Biological  Products  Advisory  Committee  ("Advisory  Committee")
reviewed  CERTIVA(TRADEMARK),  the Company's DTaP vaccine.  Representatives from
the FDA, the Company and the clinical investigators  presented the clinical data
from several studies of CERTIVA(TRADEMARK).  These studies involved over 106,000
doses  administered  to more than 47,000  infants and  children  with no serious
adverse events or deaths related to the  administration of the vaccine as judged
by the clinical  investigators.  The incidence of high fever,  redness, pain and
swelling  were all  significantly  lower  after use of the  acellular  pertussis
vaccine than after immunization with the whole-cell  pertussis vaccine.  In data
presented to the Advisory Committee by the co-principal clinical investigator in
Sweden,  efficacy of the vaccine in  preventing  pertussis  disease  varied from
71-86% depending on the definition of disease, the method of calculation and the
clinical study involved.

     Following the presentation of the data, the FDA requested that the Advisory
Committee comment on specific questions presented at the meeting.  The following
summarizes  the  Company's  assessment  of the views  expressed  by the  various
members of the  Advisory  Committee  at the  meeting.  The views of the Advisory
Committee are not binding on the FDA, and there are no  assurances  that the FDA
will agree with the Company's  assessment of or accept the views of the Advisory
Committee.

     The Advisory Committee concluded that the vaccine is safe and effective for
administration  in infants at 2, 4, 6 and 15-18 months of age. In addition,  the
Advisory  Committee  concluded  that  CERTIVA(TRADEMARK)  could be  administered
concurrently with the  administration of polio,  HAEMOPHILUS  INFLUENZAE type b,
hepatitis B and  measles-mumps-rubella  vaccines,  which are all recommended for
immunization  during the first two years of life.  In response  to the  question
presented  by the FDA on whether  the data  supports  use of  CERTIVA(TRADEMARK)
following  primary  immunization  using the whole-cell  pertussis  vaccine,  the
Advisory  Committee  raised  no  concerns  regarding  the  adequacy  of the data
regarding the use of  CERTIVA(TRADEMARK)  for the booster dose given to children
at 4-6 years of age.  The  Advisory  Committee  commented on the adequacy of the
data  regarding  the use of  CERTIVA(TRADEMARK)  for the  booster  dose given to
toddlers  at 15-18  months  of age  following  primary  immunization  using  the
whole-cell  pertussis  vaccine.  In response to those comments,  the Company may
supplement the data presented at the Advisory  Committee meeting with additional
data from  ongoing  studies or this matter may be  addressed  in  post-marketing
studies.  Although  the  Company  has not met with the FDA on the  comments  and
conclusions  of the  Advisory  Committee,  the Company does not believe that any
additional  clinical  studies  will be required in  connection  with its product
license application, other than standard post-licensure testing and surveillance
for continued monitoring of the vaccine.

     Approval of  CERTIVA(TRADEMARK)  for commercial  introduction requires that
the FDA  issue a  license  for the  product  and a  license  for the  production
facilities. Production of vaccines is a highly complex, biological process which
involves many steps commencing from seed culture through final  production.  The
production  process  could  fail  at any  point  resulting  in the  failure  and
inability  to meet  production  requirements.  From  time to time,  the  Company
experiences disruptions and production failures and there are no assurances that
the steps taken by the Company to address  such  failures  will be  effective or
that such  failures  will not  continue  in the future or affect  the  Company's

                                     - 15 -
<PAGE>



ability to obtain  regulatory  approval  for its  products or the timing of such
approval.  Moreover,  there are no  assurances  that the Company will be able to
successfully  establish  and  maintain  consistent  manufacture  and  continuous
commercial  production  of its  vaccine  products  or that it will be capable of
producing  a  competitively  priced  product  for  commercial  sale.  If the FDA
approves  CERTIVA(TRADEMARK)  and if the product is successfully launched in the
United  States,  revenues from  operations  and the prospects for  profitability
could  significantly  increase.  There are no assurances when or if FDA approval
will be obtained,  or if obtained  the Company  will be effective in  producing,
marketing and  distributing  the product.  The principal  factors  affecting the
timetable and approval of CERTIVA(TRADEMARK)  are believed to be the adequacy of
the clinical trials conducted on the product,  the adequacy of the clinical data
submitted for the product,  and the adequacy of the  manufacturing  facility and
operations for the product, among other things. The factors affecting successful
commercial  launch of  CERTIVA(TRADEMARK)  in the United States  include,  among
others:  establishing  the  identity  and  reputation  for the  Company  and its
products;  creating an awareness among  pediatricians of the safety and efficacy
of  CERTIVA(TRADEMARK);  distinguishing  the Company's  product from that of its
competitors;  establishing the Company as an effective and reliable  supplier of
vaccines;  and establishing  effective  distribution  channels.  There can be no
assurance that the Company will produce a commercially  viable product,  produce
product consistently and in quantities sufficient to compete in the marketplace,
attain sufficient market share,  establish effective  distribution  channels, or
distinguish  its vaccine  product  from that of its  competitors.  Additionally,
while the Advisory Committee on Immunization  Practices ("ACIP") has recommended
the  preferred use of DTaP vaccine for all five doses,  the American  Academy of
Pediatrics  has not  issued a  similar  recommendation,  which  may  affect  the
successful  commercialization  of DTaP vaccines for preferred use in infants and
children.  There can be no assurance such a recommendation  will be issued.  The
foregoing is only a partial  description of the factors  affecting the Company's
business  prospects and risk factors affecting future  operations.  Reference is
made  to the  Company's  previous  filings  with  the  Securities  and  Exchange
Commission  for a more  complete  description  of the  risks  and  uncertainties
affecting the Company and its business.

     In July 1996,  one company  announced that its DTaP vaccine was approved by
the FDA for  administration  at two,  four,  six and 15-18  months of age.  This
product had  previously  been  approved by the FDA for  administration  at 15-18
months of age and  immediately  prior to grade school entry.  In addition,  that
company  has  announced  that the FDA has  licensed a vaccine  that  combines by
reconstitution   that   company's   HIB  vaccine   with  its  DTaP  vaccine  for
administration at 15-18 months of age and that it continues to seek FDA approval
for administration at two, four and six months of age. Two other  manufacturers'
DTaP vaccine products recently have been reviewed by the Advisory  Committee for
administration  in infants and  children.  One of those  products  is  currently
approved by the FDA for  administration  at 15-18 months of age and  immediately
prior to grade school entry. In addition, several competitors' DTaP vaccines and
certain  combination  vaccines have been licensed for sale outside of the United
States. The Company does not believe that these events will adversely affect the
regulatory  review  process  for  CERTIVA(TRADEMARK),  although  there can be no
assurances in this regard. The Company also is unable to predict the impact that
FDA approvals or Advisory  Committee reviews of competing  products will have on
the marketing and  distribution of  CERTIVA(TRADEMARK)  should it be approved by
the FDA.

     In the fourth  quarter,  the  Company  and Abbott  Laboratories  ("Abbott")
signed a definitive agreement under which Abbott would market CERTIVA(TRADEMARK)
when  approved by the FDA.  The  marketing  agreement  also will allow Abbott to
market the Company's DTaP-HIB,  DTaP-IPV and DTaP-IPV-HIB  combination  vaccines
which are under development.

     Abbott will market  CERTIVA(TRADEMARK)  and combination vaccines to private
physicians  and managed care markets in the United  States for  immunization  of
infants  and  children.  The  Company  will  market  CERTIVA(TRADEMARK)  and the


                                     - 16 -
<PAGE>


combination vaccines to government  purchasers,  including state governments and
the Centers for Disease Control and Prevention.

     On execution of the  agreement,  the Company  received $13 million of which
$6.3 million  represented  payment for 350,000  shares of the  Company's  common
stock,  and the balance  represented a marketing fee and a clinical  development
payment.  The Company and Abbott will collaborate in the clinical development of
the  combination  vaccines  and Abbott will  provide the Company  with  clinical
development  funding.  The Company will receive  payments  upon  achievement  of
prescribed  milestones.  The agreement  provides for total payments of up to $42
million  by  Abbott.   The  first   milestone   relates  to  FDA   approval   of
CERTIVA(TRADEMARK) provided certain other conditions are satisfied. In addition,
the Company will receive revenues from Abbott as it purchases CERTIVA(TRADEMARK)
and the combination vaccine products for resale to the private pediatric market.
In  addition to the  agreement  with  Abbott,  the  Company is  considering  the
advisability  of executing  other  distribution  agreements for certain  markets
throughout the world. The Company also intends to collaborate in the development
of  selected  vaccine  products  and may  enter  into  additional  collaborative
development  agreements  similar in nature to that which was signed with Pasteur
Merieux-Connaught, as described below. These agreements, if executed, would only
impact  the  Company's  operating  results  in  future  periods.  There  are  no
assurances  that  the  Company  will  successfully  negotiate  and sign any such
agreements  or that,  if  executed,  the  financial  terms for any  distribution
agreement or further collaboration agreement will be significant.

     In December 1995, the Company signed a clinical  development  agreement and
license agreement with Pasteur Merieux-Connaught, under which the parties agreed
to jointly develop the Company's new conjugate  vaccine against  meningococcus B
infection  for both  adults  and  pediatric  indications.  In 1995  the  Company
received $3 million from Pasteur Merieux-Connaught, and further fees and funding
would  be  made  upon  achievement  of  development,   clinical  and  regulatory
milestones.  Total fees and  payments to the  Company  upon  achievement  of all
clinical and regulatory  milestones would amount to $52 million.  Achievement of
the first  milestone,  which is the  satisfactory  completion of a  pre-clinical
study and ratification of the license agreement by the National Research Council
of Canada, a Canadian federal government agency ("NRC"), would result in further
payments  from  Pasteur   Merieux-Connaught.   Additional   revenues  from  this
collaboration  will depend upon achievement of the development  milestones.  The
time it may take to achieve these milestones cannot be predicted  accurately and
no assurances can be given that any or all of these  milestones will be achieved
during 1996 or at all.  Unless the license  agreement is ratified by the NRC and
the pre-clinical agreement is successfully completed, either party may terminate
the  agreement.  In addition,  Pasteur  Merieux-Connaught  may  terminate  these
agreements in its sole discretion at any time after December 22, 1996.

     The Company spent $6.8 million for  operations in the third quarter of 1996
and $20.5  million for the nine months  ending  September 30, 1996. At September
30,  1996,  the Company had cash and cash  equivalents  of  approximately  $81.9
million  and  investment  securities  in an  affiliate  with a  market  value of
approximately  $2.0  million.  The  investment  securities  consisted of 125,000
shares  of IVAX  common  stock.  The  fair  market  value  of  these  investment
securities as of November 11, 1996 was $1.6 million. These investment securities
are volatile and therefore subject to significant fluctuations in value.

     In  the  fourth  quarter,   the  Company  acquired  a  35,000  square  foot
manufacturing  facility in Beltsville, Maryland. The  acquisition  included  the


                                     - 17 -

<PAGE>



purchase and lease of equipment and leasehold improvements and the assumption of
a real estate lease. The total acquisition cost was approximately $24.9 million,
which included a cash payment of $17.2  million.  The balance of $7.7 million is
represented by an equipment  lease  obligation  which expires in 2000. The lease
will be accounted for as a capital lease for financial reporting purposes,  with
monthly payments of approximately $179,000. In addition, the Company has assumed
the real estate lease  underlying the facility,  which is scheduled to expire in
2000, but may be extended  through 2010. Under the terms of the equipment lease,
the Company has a buyout option at the end of the third year for a predetermined
amount,  and an option at the end of the fourth  year at the greater of the fair
market value of the  equipment or a  predetermined  amount.  Under the equipment
lease  agreement  there are  financial  covenants  that  obligate the Company to
maintain  certain minimum cash and investment  balances,  a minimum tangible net
worth and certain other financial ratios.  The Company would be required to post
an irrevocable  letter of credit for  predetermined  amounts at such time as the
Company is not in compliance with any of these financial covenants.

     Total  capital  expenditures  for the first  nine  months of 1996 were $3.3
million,  primarily for production and computer related  equipment.  Total other
capital   expenditures  for  the  last  quarter  of  1996  are  expected  to  be
approximately  $1  million,   exclusive  of  expenditures  associated  with  the
acquisition  and any  modifications  of the  additional  manufacturing  facility
described above. The projected capital expenditures could fluctuate based upon a
number of factors  including  unanticipated  costs to replace or repair existing
equipment  and  systems  in  order  to  keep  the  current  production  facility
operational  or  to  maintain  compliance  with  regulatory  requirements,   and
adjustments and modifications required for the new facility.

     The Company anticipates that cash requirements for operations will be up to
$10 million in the fourth quarter of 1996, as the Company expands production for
commercial  sale in Europe and in  anticipation  of  regulatory  approval in the
United States and expands its product development program. The cash requirements
are exclusive of payments to be received under any marketing,  distribution, and
development agreements. The fourth quarter projection includes interest payments
of  approximately  $2.7 million on the convertible  notes discussed  below,  and
expenditures  associated  with the  operation  of the  additional  manufacturing
facility  described  above.  Thereafter,  cash  requirements for operations will
depend upon the level of vaccine  production,  level of regulatory and marketing
costs,  and the level of  expenditures  for the Company's  ongoing  research and
development program.

     In May  1996,  the  Company  completed  an  offering  of 6.50%  convertible
subordinated  notes in the principal  amount of $86.25  million due May 1, 2003.
The net proceeds from this offering were approximately  $82.7 million.  Interest
on the  notes  is  payable  semiannually  on  May 1 and  November  1 each  year,
commencing November 1, 1996. The notes are convertible into common shares of the
Company,  at the initial  conversion  price of  approximately  $24.86 per common
share,  at any time after  August 5, 1996.  The notes also are  subordinated  to
present and future senior  indebtedness of the Company and will not restrict the
incurrence of future senior or other indebtedness by the Company.

     The notes 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 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 common shares. The Company
is obligated to and has filed a registration  statement  registering  resales of
the notes and the underlying common shares.


                                     - 18 -
<PAGE>


     The Company's operating results for the fourth quarter of 1996, and for the
next  several  quarters,  may  fluctuate  significantly  based  upon a number of
factors  including,  among other things:  the magnitude of sales of products for
distribution  in Europe;  the timing of FDA  approval  for,  and the  commercial
introduction  of,  CERTIVA(TRADEMARK);  the  costs  associated  with  the  newly
acquired manufacturing facility, including significant depreciation expense; the
timing of the payments and the  satisfactory  completion of milestones under the
agreements with Pasteur  Merieux-Connaught  and Abbott; the cost associated with
clinical  trials;  and any additional  collaboration  agreement or  distribution
agreement.  There  are,  however,  no  assurances  that any  further  regulatory
approvals will be received, or that development  milestones will be achieved, or
that if obtained will contribute  materially to the quarterly  operating results
of the Company.  Further,  failure or significant delays in receiving additional
regulatory  approvals and meeting  required  milestones would have a significant
adverse effect on the Company's  future  operating  results and future financial
position.

TAX AND OTHER MATTERS

     At December 31, 1995, the Company and its  subsidiaries had income tax loss
carryforwards  of  approximately  $12 million to offset future  Canadian  source
income and  approximately  $45.7 million to offset future United States  taxable
income subject to the alternative minimum tax rules in the United States.





                                     - 19 -
<PAGE>


                           PART II. OTHER INFORMATION


ITEM 5.  OTHER INFORMATION

         (a)      In the  fourth  quarter,  the  Company  and  Abbott  signed  a
                  definitive   agreement   under  which   Abbott   would  market
                  CERTIVA(TRADEMARK),  the Company's DTaP vaccine, when approved
                  by the FDA. The marketing  agreement also will allow Abbott to
                  market  the  Company's  DTaP-HIB,  DTaP-IPV  and  DTaP-IPV-HIB
                  combination vaccines which are currently under development.

                  Abbott will market CERTIVA(TRADEMARK) and combination vaccines
                  to private  physicians  and managed care markets in the United
                  States for  immunization of infants and children.  The Company
                  will market CERTIVA(TRADEMARK) and the combination vaccines to
                  government  purchasers,  including  state  governments and the
                  Centers for Disease Control and Prevention.

                  On  execution  of the  agreement,  the  Company  received  $13
                  million of which $6.3 million  represented payment for 350,000
                  shares  of  the  Company's   common  stock,  and  the  balance
                  represented  a  marketing  fee  and  a  clinical   development
                  payment.  The  Company  and  Abbott  will  collaborate  in the
                  clinical  development of the  combination  vaccines and Abbott
                  will provide the Company with  clinical  development  funding.
                  The  Company  will  receive   payments  upon   achievement  of
                  prescribed  milestones.   The  agreement  provides  for  total
                  payments of up to $42 million by Abbott.  The first  milestone
                  relates to FDA approval of CERTIVA(TRADEMARK) provided certain
                  other conditions are satisfied.  In addition, the Company will
                  receive    revenues    from    Abbott    as    it    purchases
                  CERTIVA(TRADEMARK)  and the combination  vaccine  products for
                  resale to the private pediatric market.

         (b)      In the fourth  quarter,  the Company  acquired a 35,000 square
                  foot  manufacturing  facility  in  Beltsville,  Maryland.  The
                  acquisition  included the purchase and lease of equipment  and
                  leasehold  improvements  and the  assumption  of a real estate
                  lease.  The total  acquisition  cost was  approximately  $24.9
                  million,  which included a cash payment of $17.2 million.  The
                  balance of $7.7 million is represented  by an equipment  lease
                  obligation  which expires in 2000. The lease will be accounted
                  for as a capital lease for financial reporting purposes,  with
                  monthly payments of approximately  $179,000. In addition,  the
                  Company  has  assumed the real  estate  lease  underlying  the
                  facility,  which is  scheduled  to expire in 2000,  but may be
                  extended through 2010. Under the terms of the equipment lease,
                  the Company  has a buyout  option at the end of the third year
                  for a  predetermined  amount,  and an option at the end of the
                  fourth  year at the  greater of the fair  market  value of the
                  equipment or a predetermined amount. Under the equipment lease
                  agreement  there are  financial  covenants  that  obligate the
                  Company  to  maintain  certain  minimum  cash  and  investment
                  balances,  a minimum  tangible  net worth  and  certain  other
                  financial  ratios.  The  Company  would be required to post an
                  irrevocable letter of credit for predetermined amounts at such
                  time as the  Company  is not in  compliance  with any of these
                  financial covenants.

                                     - 20 -
<PAGE>


                           PART II. OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  EXHIBIT NO.       DESCRIPTION

                  10.31             Exclusive   Distribution  Agreement  between
                                    Abbott  Laboratories  ("Abbott")  and  North
                                    American  Vaccine,   Inc.  ("NORTH  AMERICAN
                                    VACCINE")    dated    October   11,    1996.
                                    (Confidential  treatment has been requestsed
                                    for portions of this exhibit.)

                  10.32             Stock Purchase  Agreement  dated October 11,
                                    1996,  between  Abbott  and  NORTH  AMERICAN
                                    VACCINE.

                  10.33             Assets Purchase  Agreement dated October 17,
                                    1996, among NORTH AMERICAN VACCINE, Cephalon
                                    Property Management, Inc. and Cephalon, Inc.
                                    (Confidential  treatment has  been requested
                                    for portions of this exhibit.)

                  27                Financial Data Schedule


         (b)      Reports on Form 8-K

                  On August 16, 1996,  the Company filed with the Securities and
                  Exchange  Commission a Current Report on Form 8-K under Item 5
                  reporting the  agreement in principle  between the Company and
                  Abbott  to  market  the  Company's  diphtheria,   tetanus  and
                  acellular pertussis (DTaP) vaccine.




                                     - 21 -
<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/ SHARON MATES
                                        ------------------------
                                        Sharon Mates, Ph.D.
                                        President


                                 By:    /S/ LAWRENCE J. HINELINE
                                        ------------------------
                                        Lawrence J. Hineline
                                        Vice President - Finance






Date:   November 14, 1996








                                     - 22 -