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, 1997

                                      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) 419-8400

--------------------------------------------------------------------------------
(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 May 1, 1997 -- 31,604,472 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 6.    Exhibits and Reports on Form 8-K.............................  20


SIGNATURES .............................................................  21


















                                       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,  1996.  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 months ended
March 31, 1997, will not necessarily be indicative of the results for the entire
fiscal year ending December 31, 1997.
























                                      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,
                                                                          1997          1996
                                                                       ----------  -------------
ASSETS                                                                (Unaudited)
<S>                                                                    <C>          <C>      
Current assets:
  Cash and cash equivalents                                            $  69,110    $  70,881
  Accounts receivable                                                        445        4,166
  Inventory                                                                1,974        1,782
  Prepaid expenses and other current assets                                  615          533
                                                                       ---------    ---------
          Total current assets                                            72,144       77,362

Property, plant and equipment, net                                        39,040       40,629
Investment in affiliate, at market                                         1,234        1,281
Deferred financing costs, net                                              3,058        3,184
Other assets                                                                 429          506
                                                                       ---------    ---------
     Total assets                                                      $ 115,905    $ 122,962
                                                                       =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                     $   2,331    $   1,912
  Deferred revenue                                                         2,470        3,000
  Obligation under capital lease, current portion                          1,533        1,496
  Other current liabilities                                                6,731        4,540
                                                                       ---------    ---------
         Total current liabilities                                        13,065       10,948

6.50% Convertible subordinated notes, due May 1, 2003                     86,250       86,250
Obligation under capital lease, net of current portion                     5,474        5,871
Deferred rent credit, net of current portion                                  89          114
                                                                       ---------    ---------
     Total liabilities                                                   104,878      103,183

Commitments and contingencies

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
    31,593,357 shares at March 31, 1997 and 31,406,999 shares at
    December 31, 1996                                                     74,759       71,357
  Unrealized investment holding gain                                         606          653
  Accumulated deficit                                                    (70,876)     (58,769)
                                                                       ---------    ---------
         Total shareholders' equity                                       11,027       19,779
                                                                       ---------    ---------

     Total liabilities and shareholders' equity                        $ 115,905    $ 122,962
                                                                       =========    =========
</TABLE>

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

                                       4
<PAGE>

 NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)


                                                        Three Months Ended
                                                             March 31,
                                                        1997         1996
                                                      ---------   ---------    

Revenues:
     Product sales                                    $    545    $    228
     Marketing, research and development agreements        530        --
                                                      --------    --------
          Total revenues                                 1,075         228
                                                      --------    --------

Operating expenses:
    Production                                           4,307       2,932
    Research and development                             4,677       2,677
    General and administrative                           3,392       1,481
                                                      --------    --------
          Total  operating expenses                     12,376       7,090
                                                      --------    --------

Operating loss                                         (11,301)     (6,862)

Other income (expenses):
    Gain on sale of investment in affiliate               --         4,228
    Interest and dividend income                           893         119
    Interest expense                                    (1,699)       --
                                                      --------    --------
Net loss                                              $(12,107)   $ (2,515)
                                                      ========    ========

Net loss per share                                    $  (0.38)   $  (0.08)

Weighted-average number of common shares
     outstanding                                        31,577      30,439

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

                                       5
<PAGE>


<TABLE>
<CAPTION>

NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)


                                                                        Unrealized
                                     Series A                             Invest-                  Total
                                   Convertible                              ment      Accum-       Share-
                                 Preferred Stock       Common Stock       Holding     ulated      holders'
                               Shares      Amount    Shares    Amount      Gains      Deficit      Equity
                               ------   --------     ------   ---------  --------    ---------  ---------- 

<S>                             <C>     <C>          <C>      <C>        <C>         <C>         <C>     
Balance, December 31, 1996      2,000   $  6,538     31,407   $ 71,357   $    653    $(58,769)   $ 19,779

Exercises of stock options       --         --          184      2,034       --          --         2,034
Shares issued under
  401(k) plan                    --         --            2         55       --          --            55
Stock option compensation        --         --         --        1,313       --          --         1,313
Decrease in market value
  of investment                  --         --         --         --          (47)       --           (47)
Net loss                         --         --         --         --         --       (12,107)    (12,107)
                             --------   --------   --------   --------   --------    --------    --------
Balance, March 31, 1997         2,000   $  6,538     31,593   $ 74,759   $    606    $(70,876)   $ 11,027
                             ========   ========   ========   ========   ========    ========    ========


</TABLE>





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







                                       6
<PAGE>


<TABLE>
<CAPTION>


NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
                                                                       Three Months Ended
                                                                            March 31,
                                                                        1997         1996
                                                                     ----------  -----------  
<S>                                                                   <C>         <C>      
Cash flows from operating activities:
    Net loss                                                          $(12,107)   $ (2,515)
    Adjustments to reconcile net loss to net cash used in operating
    activities:
          Gain on sale of investments in affiliates                       --        (4,228)
          Depreciation and amortization                                  2,683       1,168
          Amortization of deferred financing costs                         126        --
          Contribution of common stock to 401(k) plan                       55          38
          Stock option compensation                                      1,313        --
          Decrease in other assets                                          77          40
          Decrease in deferred rent                                        (21)        (19)
          Cash flows provided by other working capital items             5,523         349
                                                                      --------    --------
              Net cash used in operating activities                     (2,351)     (5,167)
                                                                      --------    --------

Cash flows from investing activities:
    Capital expenditures                                                (1,094)     (1,112)
    Proceeds from sale of investment in affiliate                         --         5,199
                                                                      --------    --------
               Net cash (used in) provided by investing activities      (1,094)      4,087
                                                                      --------    --------

Cash flows from financing activities:
    Repayment of lease obligation                                         (360)       --
    Proceeds from exercises of stock options                             2,034         649
                                                                      --------    --------
               Net cash provided by financing activities                 1,674         649
                                                                      --------    --------

Net decrease in cash and cash equivalents                               (1,771)       (431)
Cash and cash equivalents, beginning of period                          70,881      10,443
                                                                      --------    --------
Cash and cash equivalents, end of period                              $ 69,110    $ 10,012
                                                                      ========    ========

</TABLE>



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




                                       7
<PAGE>

NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)

                                                      Three Months Ended
                                                           March 31,
                                                        1997       1996
                                                      --------   --------       

Cash Flows Provided By Other Working Capital Items:

   Decrease (increase) in :
         Accounts receivable                          $ 3,721    $   801
         Inventory                                       (192)      (662)
         Prepaid expenses and other current assets        (82)        77

   Increase (decrease) in :
         Accounts payable                                 419       (356)
         Other current liabilities                      1,657        489
                                                      -------    -------
   Net cash provided by other working capital items   $ 5,523    $   349
                                                      =======    =======



Supplemental Disclosure of Cash Flow Information

Cash paid for interest                                $   172    $     0
                                                      =======    =======



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,  production,  and  sale of
vaccines for the  prevention of infectious  diseases in children and adults.  In
1996,   regulatory   approval  of  the  Company's  acellular  pertussis  vaccine
formulated  as a DTaP  vaccine for the  prevention  of  diphtheria,  tetanus and
pertussis  (whooping cough) was granted in Sweden, and regulatory  approval of a
combined  DTaP-IPV  (polio)  vaccine was granted in Denmark.  In April 1997, the
Medical Products Agency of Sweden granted regulatory  approval for the Company's
monovalent  acellular  pertussis  (aP) vaccine to  vaccinate  children,  thereby
expanding  the  indication  of the  Company's  aP  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 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, as  discussed in Note 4. 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.


                                      9

<PAGE>



(d) Net Loss Per Share.  Net loss per share is computed on the  weighted-average
number of common shares outstanding for the respective periods. All common stock
equivalents are excluded as they are antidilutive.  Fully diluted loss per share
is not presented as it would not materially differ from primary loss per share.

In 1997,  the  Financial  Accounting  Standards  Board  released  SFAS No.  128,
"Earnings  Per Share."  SFAS No. 128  requires  dual  presentation  of basic and
diluted  earnings per share on the face of the income  statement for all periods
presented.  Basic  earnings  per share  excludes  dilution  and is  computed  by
dividing income available to common stockholders by the weighted-average  number
of common shares  outstanding  for the period.  Basic earnings per share differs
from primary earnings per share pursuant to Accounting  Principles  Bulletin No.
15 ("APB 15"), which may include  dilution related to common stock  equivalents.
Diluted  earnings per share reflects the potential  dilution that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted in the  issuance of common stock that then shared
in the earnings of the entity.  Diluted earnings per share is computed similarly
to fully  diluted  earnings  per  share  pursuant  to APB 15.  SFAS  No.  128 is
effective  for  reporting  periods  ending after  December  15,  1997,  and when
adopted,  it will require  restatement  of prior periods  earnings per share for
those reported periods preceding December 15, 1997.

Since the effect of outstanding options,  convertible notes, and preferred stock
is antidilutive,  they have been excluded from the Company's  computation of net
loss per share. Accordingly,  management does not believe that SFAS No. 128 will
have an impact upon historical net loss per share as reported.

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.  Inventories  consist of the
following:

                                         March 31,    December 31,
                                           1997           1996
                                           ----           ----
                                              (in thousands)
           Raw materials                  $1,770         $1,518
           Work-in-process                    -             162
           Finished goods                    204            102
                                          ------         ------
                Total                     $1,974         $1,782
                                          ======         ======










                                      10

<PAGE>



4. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following components:

                                            March 31,      December 31,
                                               1997            1996
                                               ----            ----
                                                  (in thousands)
Accrued interest payable                   $ 2,397         $    999
Payroll and fringe benefits                  1,354            1,114
Reserve for contract loss                      720              720
Accrued taxes                                  608              608
Accrued costs of clinical trials               485              421
Accrued consulting and professional fees       282              144
Accrued construction costs                     271              192
Deferred rent credit                            99               95
Other accrued liabilities                      515              247
                                           -------          -------
         Total other current liabilities   $ 6,731          $ 4,540
                                           =======          =======


5.  SHAREHOLDERS' EQUITY

In March  1997,  the  Company  extended  the  expiration  date for an  option to
purchase  150,000  shares of common  stock at an exercise  price of $11.13.  The
Company recognized as compensation  expense in the quarter ended March 31, 1997,
the excess of the fair market value of the Company's common stock as of the date
of the option extension over the exercise price of $11.13 per share.



                                      11

<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  FOR  REGULATORY  APPROVAL,   THE  PROSPECTS  FOR  MARKETING  AND
DISTRIBUTION OF VACCINE PRODUCTS, THE PROSPECTS FOR AND FACTORS AFFECTING FUTURE
REVENUES AND PROFITABILITY,  FUTURE COMPLIANCE WITH FINANCIAL  COVENANTS UNDER A
DEBT  OBLIGATION,  LIKELIHOOD OF ADDITIONAL  FUNDING UNDER  LICENSE,  MARKETING,
DISTRIBUTION  AND/OR  DEVELOPMENT  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 REGULATORY AGENCIES INCLUDING THE FDA; THE PRODUCTION OF
VACCINES; THE NATURE OF COMPETITION; NEED FOR EFFECTIVE MARKETING; DEPENDENCE ON
SUPPLIERS,  INCLUDING  STATENS  SERUMINSTITUT;  AND  UNCERTAINTIES  RELATING  TO
CLINICAL  TRIALS,  ALL AS  DISCUSSED  IN THE  COMPANY'S  FILINGS  WITH  THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"),  INCLUDING THE 1996 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 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. In April 1997, the Swedish Ministry of Health
granted regulatory  approval for the Company's  monovalent  acellular  pertussis
(aP) vaccine to vaccinate  children,  thereby  expanding  the  indication of the
Company's aP vaccine.  In addition,  the Danish National Board of Health granted
regulatory approval in September 1996 of a combined DTaP-IPV (polio) vaccine for
all  primary  and booster  doses for  infants  and  children  in  Denmark.  This
combination  vaccine,   which  combines  the  DTaP  vaccine  with  an  enhanced,
inactivated   polio  vaccine   ("IPV"),   was   developed   jointly  by  Statens
Seruminstitut ("SSI") and the Company.

         Under  supply  agreements,   the  Company  manufactures  the  acellular
pertussis  component,  and SSI  manufactures  the  diphtheria,  tetanus  and 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  the
Scandinavian,  Baltic  and other  countries  comprising  its  territory  ("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 Sweden  and
Denmark,  respectively.  In  addition,  during the fourth  quarter of 1996,  the


                                      12

<PAGE>



Company  executed  a supply  and  distribution  agreement  with  Chiron  Behring
("Behring")  covering the Company's  DTaP and DTaP-IPV  vaccines for Germany and
Austria ("Behring's Territory").

         In 1995 and 1996, the Company recognized  development revenues pursuant
to  agreements  with  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  license  and  clinical  development
agreements. See "Outlook," below.

         In the fourth  quarter of 1996,  the  Company  and Abbott  Laboratories
("Abbott") signed an agreement under which Abbott would market Certiva(TM),  the
Company's  DTaP  vaccine,  when  approved  by the  United  States  Food and Drug
Administration ("FDA"). The marketing agreement also will allow Abbott to market
the Company's DTaP-HIB (Haemophilus influenza type b), DTaP-IPV and DTaP-IPV-HIB
combination   vaccines,   which  are  under  development.   Abbott  will  market
Certiva(TM) and the combination  vaccines to private physicians and managed care
markets in the United  States for  immunization  of infants  and  children.  The
Company  will market  Certiva(TM)  and the  combination  vaccines to  government
purchasers,  including state governments and the Centers for Disease Control and
Prevention ("CDC").

         The Company and Abbott will collaborate in the clinical  development of
the  combination  vaccines  and Abbott will  provide the Company  with  clinical
development  funding.  In  addition,  the Company  will  receive  payments  upon
achievement  of  prescribed  milestones.  The  first  milestone  relates  to FDA
approval of Certiva(TM)  provided  certain other  conditions  are satisfied.  In
September 1995, the Company filed a product license application with the FDA for
approval  to market  Certiva(TM)  and FDA  approval  for the vaccine is pending.
Following  FDA  approval,  the Company will receive  revenues  from Abbott as it
purchases  Certiva(TM)  and the combination  vaccine  products for resale to the
private pediatric market. See "Outlook," below.

         In   November   1996  the  Company   acquired  a  35,000   square  foot
manufacturing  facility in Beltsville,  Maryland.  That acquisition included the
purchase and lease of equipment and leasehold improvements and the assumption of
real estate leases.  The total  acquisition cost for the equipment and leasehold
improvements 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  accounted for as a capital lease,  which expires in 2000.  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.  The Company  believes  that it can  maintain  compliance  with these
financial  covenants for the remainder of 1997, although there are no assurances
in this regard.  This is a forward looking statement and the factors that affect
the Company's  ability to maintain  compliance  with these  financial  covenants
include,  among other things, the Company's ability to control costs, manage its


                                      13

<PAGE>



cash resources, and the magnitude and timing of product sales, and payments from
license,  marketing,  distribution and development agreements.  In addition, the
Company has assumed the real estate losses  underlying  the facility,  which are
scheduled to expire in February 2001, but may be extended through 2011.

         The Company had 224 and 168  full-time  employees  as of March 31, 1997
and 1996, respectively.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 AND 1996

         Revenue in the quarter  ended March 31, 1997 is from product  sales and
collaborative  agreements.  Revenue in the quarter  ended March 31, 1996 is from
product sales.

         Production  expenses were $4.3 million in 1997 compared to $2.9 million
in 1996. The increase in these expenses in 1997 is due to increases in materials
and labor, as the Company prepares for regulatory approval of Certiva(TM) 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
1997 over 1996 due to the increase in production activities in 1997.

         Research  and  development  expenses  increased to $4.7 million in 1997
from $2.7  million in 1996.  The  increase is  attributable  primarily to higher
depreciation and operating costs of the Company's newly acquired facility and to
a lesser extent labor and supplies,  as a result of an increase in the number of
employees.  These  increases were offset in part by lower  clinical  testing and
related expenses.

         General  and  administrative  expenses  were  $3.4  million  in 1997 as
compared  to  $1.5  million  in  1996.  The  increase  is  primarily  due to the
recognition of non-cash compensation expense in the amount of approximately $1.3
million related to the extension of the term of one expiring stock option and to
a lesser extent, higher labor costs.

         Interest  and  dividend  income  increased  to  $893,000  in 1997  from
$119,000 in 1996.  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 "Liquidity and Capital Resources," below.

         In the first  quarter of 1996,  the Company sold 193,084  shares of its
investment  in  common  stock  of IVAX  Corporation  ("IVAX"),  which  generated
proceeds of approximately $5.2 million, and a realized gain of $4.2 million.

         Interest expense in 1997 was $1.7 million due to the Company's interest
obligations  under the  convertible  subordinated  notes and an equipment  lease
accounted for as a capital lease.

         The  factors  cited above  resulted  in a net loss of $12.1  million or
$0.38 per share in 1997 as compared  to a net loss of $2.5  million or $0.08 per
share in 1996.  Without  the  effect  of the  non-cash  expense  related  to the
extension  of an  expiring  stock  option,  the net loss in 1997 would have been
$10.8 million or $0.34 per share.  Without the $4.2 million gain on the sales of
investment  securities,  the net loss per share for 1996 would have been  $0.22.
The  weighted-average  number of common shares  outstanding was 31.6 million for

                                      14

<PAGE>




1997  compared  to  30.4  million  for  1996.  The  increase  in the  number  of
weighted-average shares outstanding for 1997 as compared to 1996 is attributable
primarily to the exercise of stock options and the sale of 350,000 shares of the
Company's Common Stock to Abbott.

LIQUIDITY AND CAPITAL RESOURCES

         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.  The
notes are convertible  into shares of the Company's Common Stock, at the initial
conversion  price  of  approximately  $24.86  per  share.  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 shares of the
Company's  Common  Stock.  The  Company  has  filed  a  registration   statement
registering  resales  of the notes and the  underlying  shares of Common  Stock,
which registration statement has been declared effective by the SEC.

         The Company's cash  requirement  for operations was $6.4 million in the
first quarter of 1997 as compared to $9.8 million in the fourth quarter of 1996.
The Company's cash  requirement for operations is the net cash used in operating
activities for the period being reported less amounts  received under marketing,
research  and  development  agreements  and  further  adjusted  by the timing of
proceeds  from the sale of  investments  in  affiliates.  The  reduction in cash
requirements  for the first quarter is primarily  due to a semi-annual  interest
payment of $2.8 million on the  convertible  subordinated  notes made during the
fourth  quarter  of 1996.  At March  31,  1997,  the  Company  had cash and cash
equivalents  of  approximately  $69.1  million and  investment  securities in an
affiliate  with a  market  value  of $1.2  million.  The  investment  securities
consisted of 125,000 shares of IVAX common stock. The fair market value of these
investment  securities  as of May 1,  1997  was  approximately  $910,000.  These
investments  are volatile and therefore  subject to significant  fluctuations in
value.

         The Company  anticipates  that cash  requirements for operations in the
second quarter of 1997 will be between  approximately $10 and $12 million as the
Company: produces its acellular pertussis vaccine for commercial sale in Europe;
produces Certiva(TM) in anticipation of regulatory approval in the United States
and  other  territories;   produces  investigational  combination  vaccines  and
conjugate  vaccines;  commences  clinical  trials;  and  makes  a  $2.8  million
semi-annual  interest  payment on the convertible  subordinated  notes on May 1,
1997.  Thereafter,  quarterly cash  requirements for operations will depend upon
the level of vaccine production,  costs to market Certiva(TM) upon approval, the
level  of  expenditures  for the  Company's  ongoing  research  and  development
program, and the timing of interest payments due on the convertible subordinated


                                      15

<PAGE>



notes described above. The foregoing are forward looking  statements.  There are
no assurances that the Company will meet the  projections for cash  requirements
for  operations,  that any  further  regulatory  approvals  will be  received as
projected,  that the milestones  described  above will be achieved,  or that, if
such milestones are obtained,  they will contribute  materially to the quarterly
cash  requirements.  Failure  or  significant  delays  in  receiving  additional
regulatory  approvals and meeting  required  milestones would have a significant
adverse effect on the Company's future financial position.

         Total  capital  expenditures  for the first  quarter  of 1997 were $1.1
million.  Total  projected  capital  expenditures  for the remainder of 1997 are
expected  to be  less  than  $5.0  million.  Thereafter,  capital  expenditures,
exclusive  of any future real  estate  acquisition  or  build-out  plans,  could
fluctuate  based upon a number of factors  including:  the Company's  ability to
meet  demand  for its  licensed  products  from  its  existing  facilities;  the
Company's ability to produce sufficient  quantities of investigational  products
in its  existing  facilities;  and  unanticipated  costs to  replace  or  repair
existing   equipment  and  systems  in  order  to  keep  the  manufacturing  and
development   facilities   operational   or  in   compliance   with   regulatory
requirements.  The Company continues to evaluate its need to build-out, lease or
acquire  additional  research,  development,  production and other facilities to
accommodate the Company's expanding vaccine development program. The Company has
no  present  agreements,   commitments  or  understandings  in  respect  of  any
additional facilities and the total capital expenditures for such a project will
vary  substantially  depending upon a number of factors  including,  among other
things, the size of such facilities,  the equipment and systems requirements for
the  facilities,  location,  zoning and other  government  restrictions  and the
magnitude of available financing.

         Cash  requirements  for  operations  and capital  expenditures  for the
remainder  of 1997 will be  financed  through a  combination  of:  cash and cash
equivalents;  revenues from product  sales,  and fees and payments from license,
marketing,  distribution  and/or development  agreements;  the exercise of stock
options;  the sale of debt and/or equity  securities;  mortgage  financing;  and
equipment  leases.  The Company  believes that it has adequate cash resources to
meet its 1997 funding  requirements  although  there are no  assurances  in this
regard. While 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,
the  Company  believes  that in such  event  it could  manage  and  reduce  cash
requirements  for  operations,  although there are no assurances in this regard.
This paragraph contains forward looking statements and the factors affecting the
ability of the  Company  to meet its  funding  requirements  and manage its cash
resources  include,  among other  things,  the  magnitude  and timing of product
sales;  the  magnitude  and  timing  of any  fees  and  payments  from  license,
marketing,  distribution  and/or  development  agreements;  and the magnitude of
fixed costs.

OUTLOOK

         The Company  recognized an operating loss of $12.1 million in the first
quarter of 1997 based on revenues of $1.1 million from product sales and under a
development agreement. The Company anticipates that the remaining 1997 quarterly


                                      16

<PAGE>



operating  results may  fluctuate  significantly  based upon a number of factors
including,  among other things:  the magnitude of product sales for distribution
in Europe;  the timing of FDA approval for and the  commercial  introduction  of
Certiva(TM);  the ability of the Company and its distributors to compete against
competitive  products,  several of which have been approved,  and to effectively
market and sell  products  in their  respective  territories;  the sales  prices
established for products by the Company and its distributors;  the efficiency of
production;  the timing of the payments under license,  marketing,  distribution
and/or development  agreements with third parties; the ability of the Company to
manufacture and deliver products in accordance with customer orders;  the timing
and costs  associated  with clinical  trials and  post-licensure  testing of the
Company's products;  the timing and amount of funding that may be received under
any additional license,  marketing,  distribution and/or development  agreements
with third  parties;  and the timing of and amount of proceeds  from the sale of
additional investment  securities.  The foregoing are forward looking statements
and the factors  affecting  its outcome are  described  herein as well as in the
first  paragraph  of this  Management's  Discussion  and  Analysis of  Financial
Condition and Results of Operations, and in the Company's other filings with the
SEC,  including  the 1996  annual  report on Form  10-K,  to which the  reader's
attention is directed.

         There  are no  assurances  that the  Company  will  meet the  operating
results projected,  that any further regulatory approvals will be received, that
any milestones will be achieved,  or if achieved,  that milestone  payments will
contribute materially to the quarterly operating results of the Company.

         Product Sales. The Company anticipates additional revenues from product
sales  during the  remainder  of 1997 from the sale of its  acellular  pertussis
vaccine in Sweden for  immunization  of children  and to SSI for its sale of the
DTaP and the  DTaP-IPV  vaccines  in SSI's  Territory.  Any  additional  product
approvals  granted to SSI could lead to increased  revenues from the sale of the
Company's  acellular  pertussis vaccine.  Additional revenues may be forthcoming
from sale of the DTaP and/or DTaP-IPV  vaccines to Behring in anticipation of or
following  regulatory  approval for one or both of these products in the Behring
Territory.  There are no  assurances  that  further  product  approvals  will be
obtained in these  territories  during 1997 or at all, or that once obtained SSI
or Behring will be effective in the marketing and  distribution of the products.
The Company does not control the  marketing and  distribution  efforts of SSI or
Behring in their respective  territories and, therefore,  the Company's revenues
for product sales in those  territories are dependent upon the  effectiveness of
these parties' sales, marketing and distribution efforts.

         As  described  above,  during  1996,  the Company and Abbott  signed an
agreement under which Abbott would market  Certiva(TM)  and certain  combination
vaccines to private physicians and managed care markets in the United States for
immunization of infants and children.  The Company will market these products to
government purchasers,  including state governments and the CDC. FDA approval of
the Company's product license application for Certiva(TM) is pending.

         The Company, therefore,  anticipates revenues during 1997 from the sale
of  Certiva(TM)  in the United States to state  governments  and the CDC, and to
Abbott for resale to private  physicians  and the managed  care  market.  If the
product is launched successfully in the United States by the Company and Abbott,


                                      17

<PAGE>



revenues from operations and the prospects for profitability would significantly
increase.  There can be no assurance that the FDA's approval will be obtained or
that,  once  obtained,  the Company and/or Abbott will be effective in marketing
and distributing the product.  The principal  factors  affecting the approval of
Certiva(TM)  and its timing are believed to be the  sufficiency  of the clinical
trials'  design,  the quality of the clinical data submitted to the FDA, and the
adequacy of the manufacturing  facilities and operations for the product,  among
other things. The factors affecting successful  commercial launch of Certiva(TM)
in the United  States  include,  among  others:  successfully  participating  in
established  purchasing programs of Federal and state governments;  establishing
an  identity  and  reputation  for the  Company  and its  products;  creating an
awareness  among  pediatricians  of the  safety  and  efficacy  of the  vaccine;
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.

         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  Company's  filings with the SEC,
including the 1996 annual report on Form 10-K, for a  more complete  description
of the risks and uncertainties affecting the Company and its business.

         Marketing,  Research & Development  Agreements.  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 its
new  conjugate  vaccine  against  meningococcus  B infection for both adults and
pediatric  indications.  In 1996,  the Company  recognized  revenue from Pasteur
Merieux-Connaught  under this  collaboration.  Future fees and funding  would be
made upon achievement of development,  clinical and regulatory milestones. Total
remaining fees and payments to the Company upon  achievement of all clinical and
regulatory  milestones  amount  to  $45  million.  The  first  milestone  is the
satisfactory  completion  of a  pre-clinical  study.  In  addition,  the license
agreement must be ratified by the National  Research  Council of Canada ("NRC").
Successful  completion of the milestone and  ratification  of the license by the
NRC would trigger a payment from Pasteur Merieux-Connaught. The time it may take
to achieve  future  milestones  cannot be predicted  accurately and there are no
assurances  that any milestone will be met during 1997 or at all or that the NRC
will ratify the license agreement.  In addition,  Pasteur  Merieux-Connaught may
terminate these agreements in its sole discretion at any time.

         Under the marketing and distribution agreement with Abbott, the Company
will receive during the upcoming quarters of 1997 clinical  development payments
aggregating $7 million on dates certain and milestone  payments upon achievement
of prescribed clinical and regulatory events. The first milestone relates to FDA
approval of Certiva(TM)  provided certain other conditions are satisfied.  Total
remaining  payments by Abbott to the Company under the  agreement,  inclusive of
payments expected during 1997, amount to $29 million.  In addition,  the Company
will  receive  revenues  from  Abbott  as  it  purchases   Certiva(TM)  and  the
combination  vaccine products for resale to the private pediatric market.  There
are no  assurances  that the  milestones  will be met,  that the  quantities  of
Abbott's  purchases of  Certiva(TM)  will be  significant or as to the timing of
such  purchases,  or that Abbott will not exercise  its right to terminate  this
arrangement at any time with advance notice.

                                      18

<PAGE>



         During the  upcoming  quarters of 1997,  the Company  anticipates  that
total license fees,  clinical  development  funding and milestone payments under
its existing agreements will range from $7 million to approximately $19 million.
This is a forward  looking  statement  and the factors that affect the timing of
the license  fee and  milestone  payments  are in large  measure  outside of the
control of the Company.  In the first  quarter of 1997,  the Company  recognized
$530,000 of revenue under marketing,  research and development  agreements.  The
revenue recognized and to be recognized by the Company from clinical development
payments   received  from  Abbott  are  and  will  be  equal  to  the  Company's
expenditures  in the  clinical  development  program  for  Certiva(TM)  and  the
combination  vaccines up to a specified amount.  Accordingly,  such revenues are
likely to  fluctuate  from  quarter to  quarter  and would have no effect on net
operating results. The factors that affect the timing of these expenditures, and
therefore, the revenues to be recognized therefrom, are subject to uncertainties
related to clinical  trials and the regulatory  approval  process.  There are no
assurances that the clinical  development funding from Abbott will be sufficient
to fund all of the Company's  expenditures in the clinical  development  program
for Certiva(TM) and the combination vaccines.

         The  Company is  considering  the  advisability  of  executing  further
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 above. In
addition,  the Company is in various  stages of  discussions  with third parties
regarding  various business  arrangements  including  licensing,  joint venture,
acquisition,  and  other  business  agreements,  some of which  possibly  may be
concluded  in the near  term.  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.

TAX AND OTHER MATTERS

         At December 31, 1996, the Company and its  subsidiaries  had income tax
loss  carryforwards  of  approximately  $9.9 million to offset  future  Canadian
source  income and  approximately  $55.5  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
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 during  1997,  the  Company  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.


                                      19

<PAGE>



                          PART II. OTHER INFORMATION



ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

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

            27                Financial Data Schedule


      (b)   Reports on Form 8-K

            None.


                                      20


<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:   May 7, 1997



                                      21