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, 2000

                                       OR

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

           For the transition period from ____________ to ____________

                         COMMISSION FILE NUMBER 1-10451

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

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


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

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

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

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

Yes   X    No
     ---      ---

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

COMMON STOCK, NO PAR VALUE, OUTSTANDING AS OF MAY 12, 2000 - 32,870,350 SHARES


<PAGE>


                                TABLE OF CONTENTS



                                                                    PAGE NUMBER
                                                                    -----------

PART I.   FINANCIAL INFORMATION

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

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

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

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

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

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

Item 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations.................  14

Item 3.    Quantitative and Qualitative Disclosures About Market Risk....  28


PART II.  OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K..............................  30


SIGNATURES ..............................................................  31




                                     - 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,  1999.  In the  opinion  of
management,  all adjustments  (consisting only of normal recurring  adjustments)
necessary for a fair  presentation of the financial  information for the interim
periods  reported  have been made.  Results of  operations  for the three months
ended March 31, 2000,  will not necessarily be indicative of the results for the
entire fiscal year ending December 31, 2000.











                                     - 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,
                                                                                           2000                    1999
                                                                                    --------------------   ---------------------
<S>                                                                                        <C>                       <C>
ASSETS                                                                                  (UNAUDITED)
------
CURRENT ASSETS:
  Cash and cash equivalents                                                                $        937              $      563
  Accounts receivable                                                                               494                   3,537
  Inventory                                                                                       2,773                   3,285
  Prepaid expenses and other current assets                                                       1,213                     753
                                                                                    --------------------   ---------------------
          Total current assets                                                                    5,417                   8,138

Property, plant and equipment, net                                                               18,524                  19,668
Deferred financing costs, net                                                                     1,644                   1,773
Cash restricted for lease obligation                                                              2,734                   3,185
Other assets                                                                                        821                     827
                                                                                    --------------------   ---------------------
     TOTAL ASSETS                                                                          $     29,140              $   33,591
                                                                                    ====================   =====================

LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:

  Accounts payable                                                                         $      4,291              $    5,456
  Short term debt                                                                                25,500                  16,000
  Obligation under capital leases, current portion                                                1,936                   2,400
  Other current liabilities                                                                      10,156                   7,208
                                                                                    --------------------   ---------------------
         Total current liabilities                                                               41,883                  31,064

6.5% Convertible subordinated notes, due May 1, 2003                                             75,326                  75,326
4.5% Convertible secured notes, due November 13, 2003                                            25,000                  25,000
Obligation under capital leases, net of current portion                                              67                      79
Deferred rent credits, net of current portion                                                       277                     232
                                                                                    --------------------   ---------------------
     Total liabilities                                                                          142,553                 131,701

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIT:

  Preferred  stock,  no  par  value;  unlimited  shares  authorized-  Series  A,
     convertible; issued and outstanding 2,000,000 shares; entitled to Can $2.50
     per share (or U.S. $3.5 million in the aggregate) in liquidation                             6,538                   6,538
  Common stock, no par value; unlimited shares authorized; issued
    32,870,350 shares at March 31, 2000 and December 31, 1999                                    90,550                  90,550
  Additional paid-in capital                                                                     13,593                  13,593
  Accumulated deficit                                                                          (224,094)               (208,791)
                                                                                    --------------------   ---------------------
         Total shareholders' deficit                                                           (113,413)                (98,110)
                                                                                    --------------------   ---------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                                           $     29,140              $   33,591
                                                                                    ====================   =====================



                  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 ENDED
                                                                                      MARCH 31,
                                                                                 2000          1999
                                                                             ----------     -----------
 <S>                                                                          <C>            <C>
 REVENUES:

      Product sales                                                           $    526       $    1,159
      Marketing, research and development agreements                                 -              365
                                                                             ----------     ------------
           Total revenues                                                          526            1,524
                                                                             ----------     ------------
 OPERATING EXPENSES:

     Production and cost of sales                                                5,286            4,790
     Research and development                                                    4,872            3,768
     Selling, general and administrative                                         3,649            2,549
                                                                             ----------     ------------
           Total operating expenses                                             13,807           11,107
                                                                             ----------     ------------

 OPERATING LOSS                                                                (13,281)          (9,583)

 OTHER INCOME (EXPENSE):

     Gain on sale of investment in affiliate                                         -                -
     Interest and dividend income                                                   64              254
     Interest expense                                                           (2,086)          (1,878)
                                                                             ----------     ------------
 NET LOSS                                                                     $(15,303)      $  (11,207)
                                                                             ==========     ============

 BASIC AND DILUTED NET LOSS PER SHARE                                         $  (0.47)      $    (0.35)

 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
   OUTSTANDING                                                                  32,870           32,271



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

</TABLE>


                                                                - 5 -
<PAGE>

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


                            SERIES A
                           CONVERTIBLE                                                                  TOTAL
                         PREFERRED STOCK           COMMON STOCK          ADDITIONAL       ACCUM-       SHARE-
                      ---------------------- -------------------------    PAID-IN         ULATED       HOLDERS'
                       SHARES      AMOUNT       SHARES       AMOUNT       CAPITAL         DEFICIT      DEFICIT
                      ---------- ----------- ------------- ----------- --------------  ------------ ------------
<S>                     <C>        <C>          <C>          <C>         <C>            <C>           <C>

 December 31, 1999    2,000      $  6,538     32,870       $ 90,550    $    13,593    $ (208,791)   $ (98,110)

Net loss                  -             -          -              -              -       (15,303)     (15,303)
                                                                                                    ----------
Comprehensive loss                                                                                    (15,303)
Balance,              ---------- ----------- ------------- ----------- --------------  ------------ ------------
 March 31, 2000       2,000      $  6,538     32,870       $ 90,550    $    13,593    $ (224,094)   $(113,413)
                      ========== =========== ============= =========== ==============  ============ ============














                  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)

                                                                                             THREE MONTHS ENDED
                                                                                                  MARCH 31,
                                                                                            2000             1999
                                                                                       ----------         ----------
<S>                                                                                    <C>                <C>

CASH FLOWS FROM OPERATING ACTIVITIES:

    Net loss                                                                           $ (15,303)         $ (10,255)
    Adjustments to reconcile net loss to net cash used in operating
    activities:
        Gain on sale of investment in affiliate                                                -               (952)
        Loss on disposal of property, plant, and equipment                                     9                  -
        Depreciation and amortization                                                      1,284              1,576
        Amortization and reduction of deferred financing costs                               129                142
        Contribution of common stock to 401(k) plan                                            -                 86
        (Increase) decrease in other assets                                                    6               (100)
        Increase in deferred rent                                                             45                 17
        Cash flows provided by (used in) other working capital items                       4,878               (459)
                                                                                       ----------         ----------
              Net cash used in operating activities                                       (8,952)            (9,945)
                                                                                       ----------         ----------

CASH FLOWS FROM INVESTING ACTIVITIES:

    Capital expenditures                                                                    (149)            (1,134)
    Proceeds from sale of investment in affiliate                                              -              1,581
                                                                                       ----------         ----------
               Net cash provided by (used in) investing activities                          (149)               447
                                                                                       ----------         ----------

CASH FLOWS FROM FINANCING ACTIVITIES:

    Borrowings under revolving credit facilities                                           9,500                  -
    Proceeds from exercises of stock options, net                                              -                169
    Principal payments on capital lease obligations                                         (476)              (544)
    Cash restricted for capital lease obligation                                             451                407
                                                                                       ----------         ----------
               Net cash provided by financing activities                                   9,475                 32
                                                                                       ----------         ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                         374             (9,466)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                               563             22,953
                                                                                       ----------         ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                               $     937          $  13,487
                                                                                       ==========         ==========


                  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,
                                                                                           2000             1999
                                                                                       ----------         ----------

CASH FLOWS PROVIDED BY OTHER WORKING CAPITAL ITEMS:

    (Increase) decrease in:
          Accounts receivable                                                          $   3,043          $      88
          Inventory                                                                          512               (575)
          Prepaid expenses and other current assets                                         (460)              (265)

    Increase (decrease) in:
          Accounts payable                                                                (1,165)              (849)
          Deferred revenue and other current liabilities                                   2,948              1,142
                                                                                       ----------         ----------
    Net cash provided by (used in) other working capital items                         $   4,878          $    (459)
                                                                                       ==========         ==========


 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 Cash paid for interest                                                                $   2,086          $      98
                                                                                       ==========         ==========

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






                  The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>


                                                                - 8 -
<PAGE>


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

                                   (UNAUDITED)


1.  BUSINESS

The Company is engaged in the  research,  development,  manufacture  and sale of
vaccines for the prevention of infectious diseases.  The Company's mission is to
develop and market  superior  vaccine  products  intended to prevent  infectious
diseases,  improve the  quality of life of  children  and adults and lower total
health care costs.  The  Company  currently  has three  licensed  products  that
contain  its  acellular  pertussis  vaccine,  two of which  are in  Europe,  and
Certiva(REGISTERED)  (its combined  diphtheria,  tetanus and acellular pertussis
(DTaP)  vaccine  for  infants  and  children)  in the U.S.,  as well as 12 other
products   in  various   stages  of   development   to  prevent   meningococcal,
streptococcal,   pneumococcal,  E.  coli,  and  HAEMOPHILUS  INFLUENZAE  type  b
infections.  The  Company's  present  focus  is on the  introduction  in 2000 of
NeisVac-C(TRADEMARK),  its  vaccine for the  prevention  of  meningitis,  in the
United Kingdom (U.K.) upon receipt of U.K. regulatory approval.

In November 1999, the Company signed a definitive Share Exchange  Agreement (the
"Share  Exchange  Agreement")  to  be  acquired  by  Baxter  International  Inc.
("Baxter")  in a  taxable  stock-for-stock  transaction  pursuant  to a plan  of
arrangement  under the  Canada  Business  Corporations  Act  ("CBCA")  valued at
approximately  $390 million.  The Share Exchange Agreement was modified in April
2000. Under the modified Share Exchange  Agreement,  the Company's  shareholders
will  receive  $6.73 per share,  comprised  of $6.70 of Baxter  common stock and
$0.03 in cash. Consistent with the original Share Exchange Agreement, the number
of Baxter  shares to be issued to the Company's  shareholders  will be set based
upon the average  closing sale price of Baxter  common stock for the ten trading
days ending on the fifth trading day prior to consummation  of the  transaction.
As part of the  transaction,  Baxter  has agreed to  purchase,  as  promptly  as
practicable  after the closing,  the  Company's  outstanding  6.50%  Convertible
Subordinated  Notes due May 1, 2003 (the "6.5% Notes") and its 4.5%  Convertible
Secured Notes due November 13, 2003 (the "4.5% Notes")  pursuant to the terms of
their respective indentures.

The date by which the  transaction is to be completed has been extended from May
31, 2000 to June 30,  2000.  Under the amended  Share  Exchange  Agreement,  the
Company  will  commit  $1.3  million  to be paid in July  2000 to  assist  it in
retaining employees through June 30, 2000.

The  Company  has  failed to satisfy  certain  conditions  to closing  under the
original Share  Exchange  Agreement.  These and the other  conditions to closing
have  not been  modified  or  waived  by the  amendment  to the  Share  Exchange
Agreement.  In  addition,  the  transaction  is  still  subject  to  shareholder
approval.  As a result,  even if the acquisition  transaction is approved by the
Company's  shareholders,  Baxter  will  have no  obligation  to  consummate  the
acquisition transaction. Rather, Baxter will have the option, exercisable in its
discretion,  prior to June 30,  2000 to  either  waive any  non-compliance  with
conditions to closing and close the  transaction or terminate the Share Exchange


                                     - 9 -
<PAGE>

Agreement,  as  amended.  Either  party,  if it is not in  breach  of the  Share
Exchange  Agreement,  as amended,  may terminate the  transaction if it does not
close by June 30, 2000.  As under the original  Share  Exchange  Agreement,  the
Company's Board of Directors will recommend that the shareholders  vote in favor
of the acquisition transaction. Pursuant to a shareholder agreement, as amended,
NAVA shareholders beneficially owning approximately 44% of NAVA's common shares
and 100% of NAVA's  preferred  shares  outstanding as of May 8, 2000 (other than
NAVA shares  issuable  upon  exercise of options or  warrants or  conversion  of
preferred  stock or debt) have  agreed to vote all of their NAVA common and NAVA
preferred shares for approval of the arrangement  resolution and,  thereby,  the
arrangement.  In addition,  Baxter  beneficially owns approximately 2% of NAVA's
common shares  outstanding as of May 8, 2000, which it will vote in favor of the
arrangement  resolution and,  thereby,  the arrangement.  The Company intends to
hold a special  shareholders  meeting in  mid-June  to approve  the  acquisition
transaction as promptly as practicable.

2.  SIGNIFICANT ACCOUNTING POLICIES

(A) BASIS OF  ACCOUNTING  AND  CURRENCY.  The Company is a Canadian  corporation
incorporated  under the CBCA on August 31, 1989. The  accompanying  consolidated
financial  statements have been prepared in conformity  with generally  accepted
accounting  principles ("GAAP") in the United States and are denominated in U.S.
dollars,  because the Company  conducts the majority of its transactions in this
currency.  The  application  of  Canadian  GAAP  would not  result  in  material
adjustments to the accompanying  financial  statements  except for the impact of
the adoption of Statement of Financial  Accounting  Standards  ("SFAS") No. 115,
and the  interest  charge of $12.0  million  related to the issuance of the 4.5%
Notes during the fourth  quarter of 1998.  Under  Canadian  GAAP, the beneficial
conversion  feature of the 4.5% Notes would be assigned a value and  reported as
additional  equity to be amortized to retained earnings ratably over the term of
the 4.5% Notes  rather than being  charged to  interest  in 1998.  The effect of
foreign currency translation has been immaterial.

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

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



                                     - 10 -
<PAGE>

(D) SEGMENT  REPORTING.  The Company has  determined  that it currently does not
have reportable segments.  Product sales in the United States were approximately
$526,000  and  $796,000  million for the three  months  ended March 31, 2000 and
1999,  respectively.  Product sales to Europe were  approximately $0 million and
$363,000   million  for  the  three  months  ended  March  31,  2000  and  1999,
respectively.  All products are  manufactured  at the Company's  one  production
facility in the United States.  The production  process,  and ultimately product
costing,  is primarily  the same for all of the  Company's  acellular  pertussis
vaccine products sold in the United States and Europe.  Because of this, and the
relative   consistency  in  selling  prices,  as  well  as  the  nature  of  the
distribution methods utilized by the Company, the Company does not differentiate
and manage its business along geographic lines.

3.  PROPERTY, PLANT AND EQUIPMENT

In September  1999,  the Company  completed a  sale/leaseback  of its only owned
facility.  The  approximately  31,000 square foot  facility,  which is used as a
warehousing and testing facility was sold for approximately  $2.1 million with a
loss on the sale of $378,000.  The lease for the facility is for an initial term
of ten years, with two five-year  renewal options.  The initial base annual rent
under the lease is approximately $237,000 with minimum annual escalations.

4.  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.  Costs  attributable  to
Certiva(REGISTERED)   production  under  non-regulatory   approved  optimization
production  processes are being expensed until  regulatory  approval is obtained
for such new  processes.  Costs to produce  NeisVac-C(TRADEMARK),  the Company's
vaccine for the  prevention of meningitis,  have been expensed until  regulatory
approval is obtained.  Any production costs incurred in excess of net realizable
value are  expensed  in the  quarter  in which  they are  incurred.  Inventories
consist of the following:

                                        March 31,            December 31,
                                          2000                   1999
                                          ---------------------------
                                                (in thousands)
                Raw materials          $ 2,240                  $ 2,371
                Work in process             84                      745
                Finished goods             449                      169
                                      --------                 --------
                     Total             $ 2,773                  $ 3,285
                                      ========                 ========


5.  OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following components:


                                     - 11 -
<PAGE>

                                              March 31,             December 31,
                                                2000                    1999
                                                ----------------------------
                                                       (in thousands)
Payroll and fringe benefits                  $   4,253               $   3,458
Accrued interest                                 2,582                   1,069
Accrued taxes                                      533                     833
Reserve for contract loss                          720                     720
Accrued consulting and professional fees           541                     462
Accrued costs of clinical trials                   437                     245
Accrued insurance                                  517                      45
Other accrued liabilities                          573                     376
                                             ---------               ---------
          Total other current liabilities    $  10,156               $   7,208
                                             =========               =========


6.  RESTRICTED CASH AND OBLIGATIONS UNDER CAPITAL LEASE

In connection with an operating  lease for a 35,000 square foot  development and
production  facility,  the Company  entered into an agreement  that included the
purchase  and lease of  equipment  and  leasehold  improvements.  As part of the
operating  lease,  the Company assumed the underlying real estate leases,  which
are  scheduled to expire in February  2001,  but may be extended  through  2011.
Under the terms of the equipment lease,  there are certain  financial  covenants
that obligate the Company to maintain  certain cash and investment  balances,  a
minimum  tangible net worth  (defined to include  amounts under the  outstanding
convertible  subordinated  notes),  and  certain  other  financial  ratios.  The
equipment lease  agreement  permits the Company,  at its option,  to suspend the
application of financial covenants by posting a stand-by letter of credit, which
may be revoked by the Company  provided  certain  conditions are  satisfied.  In
April  1998,  as  permitted  by  the  equipment  lease  agreement,  the  Company
voluntarily  posted a letter of credit in the  amount of $5.9  million,  thereby
suspending  the  application  of all financial  covenants.  The letter of credit
decreases on a monthly  basis as the payments on the lease  obligation  are made
and is secured by a restricted  cash deposit of an equal amount.  The balance of
the letter of credit and the  corresponding  restricted  cash is $2.7 million at
March 31,  2000.  The letter of credit  will  expire by its terms on November 1,
2000, at which time approximately $1.6 million will be released to the Company.

7.  CONVERTIBLE DEBT

In June 1999,  the Company  retired  $8.4 million  principal  amount of the 6.5%
Notes in  exchange  for  550,000  shares  of  Common  Stock.  As a result of the
transaction,  the Company recognized a one-time non-cash debt conversion expense
of approximately $940,000,  which was included in interest expense in the second
quarter  of 1999.  The  principal  balance  of the  outstanding  notes was $75.3
million at March 31, 2000.


                                     - 12 -
<PAGE>


8.  LINES OF CREDIT/SUBSEQUENT EVENT

In July 1999,  the Company  obtained from a bank a $6 million  revolving line of
credit  originally  maturing  December 31, 1999. The interest rate on borrowings
under the line of credit is LIBOR  plus  2.65%.  BioChem,  an  affiliate  of the
Company, has provided the guarantee for the line of credit, which will remain in
place  until  July  2001,  unless  there  is a  change  of  control  such as the
contemplated  acquisition by Baxter. Upon drawing  down on the line of credit by
the Company,  BioChem was entitled to receive warrants to purchase up to a total
of 750,000 shares of the Company's Common Stock. The warrants were issued by the
Company  ratably as it drew down under the line of credit.  Each  warrant  has a
term of two years from the date of issuance.  The per share exercise price under
the warrant is approximately $5.14, which is the average of the closing price of
the Company's Common Stock on the American Stock Exchange over five trading days
that  began  on  June  28 and  ended  on July 2,  1999.  Each  warrant  contains
anti-dilution  provisions and registration  rights among other  provisions.  The
Company  drew down $6  million in 1999  under the  revolving  line of credit and
accordingly  issued  warrants  to  purchase  750,000  shares of Common  Stock to
BioChem.

The Company recognized a total of approximately $1.6 million of interest expense
in the second half of 1999  calculated  using the  Black-Scholes  pricing  model
based upon the  issuance of these  warrants to purchase up to 750,000  shares of
common stock.

Upon reaching a definitive  acquisition  agreement with Baxter in November 1999,
to be acquired  by Baxter,  the Company  finalized  terms  relating to a secured
revolving  line of credit from Bank of America,  N.A.,  which was  guaranteed by
Baxter.  The credit line was for $30  million at an interest  rate of LIBOR plus
 .625% and had a maturity  of March 31,  2000.  The line of credit was secured by
all of the Company's otherwise  unencumbered assets,  including patents,  patent
applications  and  receivables.  This line of credit was  extended  to April 17,
2000, and the $19.5 million outstanding at that time was repaid with part of the
proceeds from $45 million of new financing  obtained on April 17, 2000. This new
financing  provides  up to $45  million in funding of which $40 million is being
provided by BioChem and up to $5 million by Dr.  Phillip  Frost through June 30,
2000 (collectively, "New Financing"). This New Financing includes the assignment
by Bank of  America,  N.A. to BioChem of the rights and  obligations  associated
with the  approximately  $19.5  million  utilized by the  Company  under the $30
million  line of credit  provided by Bank of America.  BioChem  will provide the
remaining $20.5 million and Dr. Frost will provide an additional $5 million,  if
needed.  This  New  Financing  is at a 15%  interest  rate and is  subject  to a
deferred  financing fee of up to $11.25 million in the  aggregate,  which fee is
payable on the maturity date of the New Financing.  The New Financing is secured
by the same  collateral as under the Bank of America line of credit.  Baxter has
the right to provide the final $5 million under the New  Financing  arrangements
in  substitution  for Dr.  Frost and has a right of first  offer to provide  any
additional financing that the Company may require prior to June 30, 2000. Baxter
has consented to these interim financing arrangements and has been released from
its guarantee.



                                     - 13 -
<PAGE>


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

         THE  FOLLOWING  PARAGRAPHS  IN THIS FORM 10-Q CONTAIN  CERTAIN  FORWARD
LOOKING  STATEMENTS,  WHICH ARE WITHIN THE  MEANING OF AND MADE  PURSUANT TO THE
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES  LITIGATION REFORM ACT OF 1995.
THESE FORWARD LOOKING STATEMENTS INCLUDE,  WITHOUT  LIMITATION,  THOSE REGARDING
THE PROSPECTS AND TIMING FOR FILING FOR AND OBTAINING REGULATORY  APPROVAL,  THE
PROSPECTS FOR AND TIMING OF MARKETING AND DISTRIBUTION OF VACCINE PRODUCTS,  THE
PROSPECTS  FOR AND FACTORS  AFFECTING  FUTURE  REVENUES AND  PROFITABILITY,  THE
AVAILABILITY OF FUNDS UNDER EXISTING CREDIT  FACILITIES,  THE ABILITY TO SERVICE
THE  COMPANY'S  DEBT AND TO MEET THE  COMPANY'S  CASH FLOW NEEDS,  PROSPECTS FOR
PRODUCTION  CAPACITY,  REDUCED  PRODUCTION  COSTS,  AND THE  ABILITY TO CAMPAIGN
PRODUCTS THROUGH ITS PRODUCTION FACILITY,  LIKELIHOOD OF ADDITIONAL FUNDING FROM
FURTHER  FINANCINGS  OR UNDER ANY NEW LICENSE,  MARKETING,  DISTRIBUTION  AND/OR
DEVELOPMENT  AGREEMENTS,  PROSPECTS OF AND TIMING FOR COMPLETING THE ACQUISITION
OF THE COMPANY,  CASH REQUIREMENTS FOR FUTURE  OPERATIONS,  PROJECTED RESULTS OF
OPERATIONS, AND PROJECTED CAPITAL EXPENDITURES AND COST REDUCTIONS.  READERS ARE
CAUTIONED THAT FORWARD  LOOKING  STATEMENTS  INVOLVE RISKS,  UNCERTAINTIES,  AND
FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS AND PROSPECTS,  INCLUDING WITHOUT
LIMITATION THOSE DESCRIBED BELOW AS WELL AS THE RISKS ASSOCIATED WITH: OBTAINING
REGULATORY  APPROVAL OF PRODUCTS AND FACILITIES BY REGULATORY AGENCIES INCLUDING
THE U.S. FOOD AND DRUG ADMINISTRATION  ("FDA"); THE PRODUCTION OF VACCINES;  THE
TIMING FOR AND EFFICIENCIES  RECOGNIZED FROM PRODUCT CAPACITY IMPROVEMENTS;  THE
NATURE OF COMPETITION;  NEED FOR EFFECTIVE  MARKETING;  DEPENDENCE ON SUPPLIERS,
INCLUDING  STATENS  SERUM  INSTITUT  ("SSI"),  AND  DISTRIBUTORS;  UNCERTAINTIES
RELATING  TO  CLINICAL  TRIALS;   UNCERTAINTIES  RELATING  TO  CONSUMMATING  THE
ACQUISITION OF THE COMPANY; AND THE TIMING AND NECESSITY FOR EXPENDITURES AND/OR
COST  REDUCTIONS,  ALL AS  DISCUSSED  IN THE  COMPANY'S  FILINGS  WITH  THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"),  INCLUDING THE 1999 ANNUAL REPORT ON
FORM 10-K, TO WHICH THE READER'S ATTENTION IS DIRECTED. THE AUDIT REPORT FOR THE
FINANCIAL  STATEMENTS  FOR THE YEAR ENDED  DECEMBER 31, 1999, AS PREPARED BY THE
COMPANY'S  INDEPENDENT PUBLIC  ACCOUNTANTS,  INDICATES THAT THERE IS SUBSTANTIAL
DOUBT AS TO THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN.

BACKGROUND

         The Company is engaged in the research,  development,  manufacture  and
sale of vaccines  for the  prevention  of  infectious  diseases.  The  Company's
mission is to develop and market superior vaccine  products  intended to prevent
infectious  diseases,  improve the  quality of life of  children  and adults and
lower total health care costs. The Company currently has three licensed products
that  contain its  acellular  pertussis  vaccine,  two of which are  licensed in
Europe, and Certiva(REGISTERED) (its combined diphtheria,  tetanus and acellular
pertussis  (DTaP)  vaccine for infants  and  children)  which is licensed in the
U.S., as well as 12 other  products in various  stages of development to prevent
meningococcal,  streptococcal, pneumococcal, E. coli, and HAEMOPHILUS INFLUENZAE
type b infections.

         In  November  1999,  the Company  signed a  definitive  Share  Exchange
Agreement   (the  "Share   Exchange   Agreement")   to  be  acquired  by  Baxter


                                     - 14 -
<PAGE>

International Inc. ("Baxter") in a taxable stock-for-stock  transaction pursuant
to a plan of arrangement  under the Canada Business  Corporations  Act valued at
approximately  $390 million.  The Share Exchange Agreement was modified in April
2000. Under the modified Share Exchange  Agreement,  the Company's  shareholders
will  receive  $6.73 per share,  comprised  of $6.70 of Baxter  common stock and
$0.03 in cash. Consistent with the original Share Exchange Agreement, the number
of Baxter  shares to be issued to the Company's  shareholders  will be set based
upon the average  closing sale price of Baxter  common stock for the ten trading
days ending on the fifth trading day prior to consummation  of the  transaction.
As part of the  transaction,  Baxter  has agreed to  purchase,  as  promptly  as
practicable  after the closing,  the  Company's  outstanding  6.50%  Convertible
Subordinated  Notes due May 1, 2003 (the "6.5% Notes") and its 4.5%  Convertible
Secured Notes due November 13, 2003 (the "4.5% Notes")  pursuant to the terms of
their respective indentures.

         The date by which the  transaction is to be completed has been extended
from May 31, 2000 to June 30, 2000. Under the amended Share Exchange  Agreement,
the Company  will  commit  $1.3  million to be paid in July 2000 to assist it in
retaining employees through June 30, 2000.

         The Company has failed to satisfy  certain  conditions to closing under
the original Share Exchange Agreement. These and the other conditions to closing
have  not been  modified  or  waived  by the  amendment  to the  Share  Exchange
Agreement.  In  addition,  the  transaction  is  still  subject  to  shareholder
approval.  As a result,  even if the acquisition  transaction is approved by the
Company's  shareholders,  Baxter  will  have no  obligation  to  consummate  the
acquisition transaction. Rather, Baxter will have the option, exercisable in its
discretion,  prior to June 30,  2000 to  either  waive any  non-compliance  with
conditions to closing and close the  transaction or terminate the Share Exchange
Agreement,  as  amended.  Either  party,  if it is not in  breach  of the  Share
Exchange  Agreement,  as amended,  may terminate the  transaction if it does not
close by June 30, 2000.  As under the original  Share  Exchange  Agreement,  the
Company's Board of Directors will recommend that the shareholders  vote in favor
of the acquisition transaction. Pursuant to a shareholder agreement, as amended,
NAVA shareholders  beneficially owning approximately 44% of NAVA's common shares
and 100% of NAVA's  preferred  shares  outstanding as of May 8, 2000 (other than
NAVA shares  issuable  upon  exercise of options or  warrants or  conversion  of
preferred  stock or debt) have  agreed to vote all of their NAVA common and NAVA
preferred shares for approval of the arrangement  resolution and,  thereby,  the
arrangement.  In addition Baxter  beneficially  owns  approximately 2% of NAVA's
common shares  outstanding as of May 8, 2000, which it will vote in favor of the
arrangement  resolution and,  thereby,  the arrangement.  The Company intends to
hold a special  shareholders  meeting in  mid-June  to approve  the  acquisition
transaction as promptly as practicable.

         Pursuant  to a separate  agreement,  up to $45  million in funding  for
Company  operations is being  provided by BioChem and Dr.  Phillip Frost through
June 30, 2000 (collectively,  "New Financing").  This New Financing includes the
assignment  by Bank of America,  N.A.  to BioChem of the rights and  obligations
associated with the  approximately  $19.5 million  utilized by the Company under
the $30 million line of credit  instituted in November 1999,  which was provided
by Bank of America and guaranteed by Baxter. That line of credit was repaid with
proceeds from the New Financing. The Baxter guarantee expired on April 17, 2000.
That line of credit was secured by all of the Company's  otherwise  unencumbered
assets,  including  patents,  patent  applications,  and  receivables.  This New


                                     - 15 -
<PAGE>


Financing is at a 15% interest  rate and is subject to a deferred  financing fee
of up to $11.25 million in the  aggregate,  which fee is payable on the maturity
date of the New Financing.  The New Financing is secured by the same  collateral
as under the Bank of America line of credit. Baxter has the right to provide the
final $5 million under the New Financing  arrangements in substitution for Dr.
Frost and has a right of first offer to provide any  additional  financing  that
the Company may require  prior to June 30, 2000.  Baxter has  consented to these
interim financing arrangements and has been released from its guarantee.

         The  Company may be  required  to pay Baxter a  termination  fee of $14
million and may be required to reimburse Baxter's  out-of-pocket  expenses up to
$1 million if the Share  Exchange  Agreement,  as amended,  is terminated  under
specific circumstances. See "Liquidity Capital Resources; Outlook."

         In connection with the Baxter transaction,  the Company's present focus
is on the introduction of NeisVac-C(TRADEMARK) in the United Kingdom late second
or early  third  quarter of 2000.  The NHS has  committed  to purchase 3 million
doses of  NeisVac-C(TRADEMARK)  in 2000 for approximately  (pound)40 million (or
approximately $62 million at May 4, 2000), with shipments that were scheduled to
begin in April  2000,  subject  to UK  regulatory  approval  and  certain  other
conditions.  The Company filed its marketing authorization  application with the
UK  regulatory  authorities  on  January  24,  2000 and is seeking  approval  of
NeisVac-C(TRADEMARK)  for administration to children 12 months of age and older,
adolescents  and adults.  The Company  did not meet the first  delivery  date in
April  2000  under the NHS  contract.  Currently,  the  Company  expects to have
initial  product  quantities  released and available for delivery to NHS late in
the second quarter of 2000,  although there can be no assurances in this regard.
The Company has had informal  discussions with NHS regarding the possible delays
in licensure and product delivery and believes that, based on these discussions,
the NHS would be willing to  reschedule  deliveries  through the end of 2000 for
the entire 3 million doses,  without  penalty,  if the  regulatory  approval for
NeisVac-C(TRADEMARK)  was  issued  within a few months of April  2000,  although
there can be no assurances in this regard.

         With  only one  manufacturing  facility,  the  Company  currently  must
alternate the production of its various  products.  During the fourth quarter of
1999,   the   Company   commenced   the   change   over   from   production   of
Certiva(REGISTERED)  and its  acellular  pertussis  ("aP")  vaccines  to produce
NeisVac-C(TRADEMARK)  in anticipation of its commercial launch of the product in
the U.K. Accordingly,  the Company has been selling  Certiva(REGISTERED) and its
aP vaccines out of limited  inventories  produced  prior to the change over. The
Company expects to return to production of  Certiva(REGISTERED)  and aP vaccines
in 2000 once NeisVac-C(TRADEMARK) production requirements are completed.

         The  Company's  revenues  historically  have been  derived from product
sales of  Certiva(REGISTERED)  and the aP vaccines  and from  payments  received
under  marketing,  research and development  agreements.  The product launch for
Certiva(REGISTERED),  which was  licensed by the FDA in July 1998,  began in the
fourth quarter of 1998. The Company markets  Certiva(REGISTERED)  in the U.S. to
government  purchasers,  including state governments and the Centers for Disease
Control  and  Prevention  ("CDC").  Under  a  distribution   agreement,   Abbott


                                     - 16 -
<PAGE>

Laboratories  ("Abbott")  previously  marketed  Certiva(REGISTERED)  to  private
physicians  and  managed  care  markets in the United  States;  however,  Abbott
terminated  the agreement in September  1999.  After Abbott's  termination,  the
Company has sold limited  quantities of  Certiva(REGISTERED)  to  non-government
purchasers through direct arrangements with distributors.

The Company also has derived  product sales from sales of aP vaccines for use in
European  formulations of  Certiva(REGISTERED)  and DTaP-IPV  (polio)  vaccines,
principally  in  Scandinavian  countries  within the  territory of the Company's
European  partner,  SSI.  Regulatory  approvals for  Certiva(REGISTERED)-EU  and
DTaP-IPV were granted in 1996 in Sweden and Denmark, respectively. In June 1998,
the Company was advised that, under the European mutual  recognition  procedure,
the  regulatory  authorities in Germany,  Austria,  Sweden and Finland agreed to
recognize  the  marketing  authorization  granted  by Denmark  for the  DTaP-IPV
vaccine.  In the first half of 1999,  both  Germany  and  Austria  issued  their
national marketing authorizations for the Company's DTaP-IPV vaccine pending the
completion of labeling issues related to  distribution  of the product.  Under a
marketing  agreement between the Company and Chiron-Behring  GmbH & Co. ("Chiron
Behring"),  Chiron  Behring  was to market the  DTaP-IPV  vaccine in Germany and
Austria.  In January  2000,  the  Company  and  Chiron  Behring  terminated  the
marketing  agreement in Germany and Austria for the Company's  DTaP-IPV vaccine.
The Company does not expect to market  DTaP-IPV in Germany and Austria  until it
can secure alternative distribution arrangements.

Revenues from marketing,  research and development agreements  historically have
been derived  principally  from  collaborations  with Aventis Pasteur  (formerly
Pasteur Merieux  Connaught) and Abbott,  both of which have been terminated.  In
February 2000,  Aventis  Pasteur  notified the Company that Aventis  Pasteur was
exercising  its  option  to  terminate  the  license  and  clinical  development
agreements for the Company's Group B meningococcal  vaccine  principally because
of a change in strategic  direction by Aventis Pasteur.  Under these agreements,
Aventis Pasteur reimbursed the Company for certain clinical development costs as
incurred  and  the  Company  also  was  entitled  to  milestone   payments  upon
achievement  of  prescribed  events,  principally  measured  by  progress in the
regulatory  process for the group B meningococcal  vaccine.  Under the marketing
agreement  with Abbott,  the Company  received  milestone  payments upon the FDA
approval of  Certiva(REGISTERED),  and Abbott supported certain of the Company's
clinical  development  activities  for  the  combination  vaccines,  such as the
DTaP-IPV  and  DTaP-IPV-Hib  vaccines.  Under the  terms of the  Share  Exchange
Agreement, as  amended, the  Company  currently  cannot  enter  into  any new or
alternative collaborative arrangements for third parties to distribute, research
or develop its products  without  Baxter's  consent until either the transaction
with  Baxter is  completed  or the Share  Exchange  Agreement,  as  amended,  is
terminated.

         The Company has a significant  level of  indebtedness.  As of March 31,
2000, the Company's consolidated  indebtedness and capitalized lease obligations
totaled approximately $142.6 million, including $75.3 million represented by the
6.5% Notes,  $25 million  represented by the 4.5% Notes, $6 million under a line
of credit  guaranteed  by  BioChem,  as more fully  discussed  below,  and $19.5
million  under a line of credit  guaranteed  by Baxter  (which was  subsequently


                                     - 17 -
<PAGE>

assigned to BioChem in April 2000). See "Background"  above. The Company's total
assets at March 31, 2000 were approximately $29.1 million.

         The Company  retired $8.4 million of the  principal  amount of the 6.5%
Notes in exchange for 550,000  shares of Common Stock in June 1999. The exchange
was privately  negotiated with a single holder of the notes, and resulted in the
recognition of an approximately  $940,000  one-time non-cash expense included in
interest expense for the quarter ended June 30, 1999.

         In July 1999,  the  Company  obtained a $6  million  revolving  line of
credit from a commercial bank at an interest rate of LIBOR plus 2.65%.  The line
of credit  currently  matures on June 30, 2000 and is guaranteed by BioChem,  an
affiliate of the Company.  BioChem's  guarantee  will remain in place until July
2001,  unless there is a change of control such as the contemplated  acquisition
by Baxter. In return for the guarantee,  the Company granted BioChem warrants to
purchase up to 750,000  shares of the  Company's  Common Stock at  approximately
$5.14  per share  ("Warrants").  Pursuant  to a letter  agreement,  as  amended,
regarding the Warrants, the Warrants expire upon consummation of the transaction
contemplated by the Share Exchange Agreement, as amended. During the second half
of 1999, the Company drew down the entire $6 million under the revolving line of
credit and  accordingly  issued  Warrants to purchase  750,000  shares of Common
Stock to BioChem.  A total of approximately $1.6 million of interest expense was
generated by the issuance of these  Warrants and was  recognized in total in the
last two quarters of 1999,  beginning  at the issuance  date of the Warrants and
ending on December 31, 1999, the original repayment date for the line of credit.

         The  Company  had 258 and 314  employees as of March 31, 2000 and 1999,
respectively.


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

THREE MONTHS ENDED MARCH 31, 2000 AND 1999

         In 2000, the Company  recognized  total revenue of $526,000,  which was
from  sales of  Certiva(REGISTERED)  in the U.S.  Revenue in 1999  totaled  $1.5
million of which  approximately  $363,000 was from sales of aP to SSI,  $796,000
was  from  sales  of   Certiva(REGISTERED)   in  the  U.S.,  and  $365,000  from
collaborative  agreements.  Other  than the aP supply  agreement  with SSI,  the
Company currently has no revenue-generating collaborative agreements in place.

         Production  expenses were $5.3 million in 2000 compared to $4.8 million
in 1999.  The increase in these expenses in 2000 is primarily  attributable  to:
the  capitalizing  of  Certiva(REGISTERED)  and aP production  expenses in 1999,
which production  expenses were not capitalized in 2000 due to the changeover to
NeisVac-C(TRADEMARK)  production, and FDA post-marketing  surveillance expenses.
Costs  attributable to aP production  under optimized  production  processes and
production of NeisVac-C(TRADEMARK)  are being expensed until regulatory approval
is obtained for such new products and  processes.  See  "Projected  Results From
Operations."


                                     - 18 -
<PAGE>

         Research and development expenses were $4.9 million in 2000 compared to
$3.8 million in 1999. The increase is attributable primarily to contractor costs
incurred in the development of  NeisVac-C(TRADEMARK)  and higher clinical trials
expense offset in part by lower  depreciation  expenses related to the use of an
accelerated depreciation method for equipment acquired prior to 1998.

         Selling,  general and administrative expenses were $3.7 million in 2000
compared to $2.6 million in 1999. The increase was due primarily to $1.1 million
of accrued compensation expense related to an employee retention program.

         In 1999, the Company recognized $952,000 of gain related to the sale of
an investment in an affiliate.

         Interest and dividend income decreased to $64,000 in 2000 from $254,000
in 1999.  This  reduction  is due  primarily  to a decrease in the average  cash
balance.

         Interest expense increased to $2.1 million in 2000 from $1.9 million in
1999.  The  increase  is due  primarily  to  increased  debt as a result  of the
borrowings  under the lines of credit offset in part by principal  payments made
on the equipment lease.

         The  factors  cited above  resulted  in a net loss of $15.3  million or
$(0.47)  per share in 2000 and a net loss of $10.3  million or $(0.32) per share
in 1999. Without the $952,000 gain on the sale of an investment in an affiliate,
the loss in 1999  would  have been $11.2  million  or  $(0.35)  per  share.  The
weighted-average  number of common shares  outstanding was 32.9 million for 2000
compared   to  32.2   million   for  1999.   The   increase  in  the  number  of
weighted-average shares outstanding for 2000 as compared to 1999 is attributable
primarily to the  conversion  of some of the 6.5% Notes into  550,000  shares of
Common Stock in June 1999.

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

         The Company's cash  requirement for operations for the first quarter of
2000 was $9.0  million as  compared  to $12.9  million in the fourth  quarter of
1999.  The decrease is due primarily to interest  payments made in November 1999
for the 6.5% and 4.5%  convertible  notes.  The Company's cash  requirement  for
operations  is the net cash used in  operating  activities  for the period being
reported.

         At March  31,  2000,  the  Company  had cash  and cash  equivalents  of
approximately  $937,000. In addition, the Company had approximately $2.7 million
of restricted cash pledged as collateral  under the letter of credit  agreement,
which will be reduced in amount as payments are made under the  equipment  lease
described in Note 6 of the financial statements.

         PROJECTED RESULTS FROM OPERATIONS. The Company anticipates that it will
report a net loss of between $22 and $30 million for the second quarter of 2000,
and it is likely that there will be net income in the second half of 2000,  with
a possible return to losses in the first quarter of 2001. The projected  results
for the entire year 2000 will be a net loss. The foregoing projections are based


                                     - 19 -
<PAGE>

upon several  factors.  The factors  included in assessing the projected  losses
are,   among   others:   the   sale  of  a  total   of  3   million   doses   of
NeisVac-C(TRADEMARK)  under the NHS contract along with the timing and magnitude
of such sales; the recognition of up to approximately  $11.25 million of expense
in the second quarter of 2000 as a result of the deferred  financing fee related
to the New Financing;  difficulties experienced in scaling up bulk manufacturing
of NeisVac-C(TRADEMARK);  the expensing of costs to produce NeisVac-C(TRADEMARK)
prior to regulatory  approval;  acquisition of additional approvals and possible
contracts to supply  Certiva(REGISTERED)  in 2001; limited product sales in 2000
and possibly in 2001 from the limited  inventory of  Certiva(REGISTERED)  and aP
vaccines  on  hand;  manufacturing   limitations  for  the  Company's  acellular
pertussis  vaccines;  and limitations on the Company's  ability to negotiate and
enter into new collaborative arrangements and alternative financings pursuant to
the terms of the Share Exchange  Agreement,  as amended,  all as more completely
discussed in the following paragraphs.

         The  principal  source of  revenues  in 2000 is  expected to be product
sales of  NeisVac-C(TRADEMARK)  to the NHS. Under the NHS contract,  the Company
committed to supply NHS with 3 million doses of  NeisVac-C(TRADEMARK)  beginning
in April 2000 for approximately  (pound)40 million (or approximately $62 million
at May 4,  2000).  The  Company  experienced  some  problems  in scaling up bulk
manufacturing  of  NeisVac-C(TRADEMARK),   which  have  impacted  the  Company's
schedule for commercial production of NeisVac-C(TRADEMARK). The Company believes
that  progress has been made to address all material  production  problems,  and
that  the  Company  will  be  able  to  deliver  the  full 3  million  doses  of
NeisVac-C(TRADEMARK)  to the NHS in  2000.  The  Company  has not met the  first
delivery  date in  April  2000  and  there  can be no  assurances  that  further
production  disruptions  or failures  will not impact the  Company's  ability to
deliver  NeisVac-C(TRADEMARK)  timely or in  sufficient  quantities  to meet its
obligations  under the NHS  contract.  The  Company  currently  expects  to have
initial  product  quantities  released and available for delivery to NHS late in
the second or early third quarter of 2000,  although  there can be no assurances
in  this  regard.  The  Company,  however,  has not yet  received  the  required
regulatory approval to sell NeisVac-C(TRADEMARK) in the U.K.

         In addition,  the Company's  success in achieving its production  goals
will depend, in part, on its ability to attract and retain qualified  personnel.
Competition  for such  personnel  is intense,  and the  Company has  experienced
employee losses over the last six months. Although management is taking steps to
retain its  employees,  which  includes the payment of bonuses under an employee
retention  program,  no assurance can be given that the Company will continue to
attract or retain  qualified  personnel or that the Company will not  experience
additional  personnel losses in the future. The loss of additional key personnel
could adversely affect the Company.

         Under the terms of the NHS contract, if the Company did not receive the
requisite marketing  authorization before its first delivery date in April 2000,
NHS has the right to (1) reschedule the deliveries  without reducing the minimum
volumes to be supplied by the Company,  (2) reduce the volumes to be supplied by
the Company by an amount that NHS  considers  reasonable  to reflect the shorter
life  of  the  agreement,   or  (3)  terminate  the  contract.   Moreover,  once
NeisVac-C(TRADEMARK) is licensed, the terms of the contract require, among other
things,  that the Company  reimburse  the NHS and its  affiliates  for any costs
associated  with delays  caused by the  Company  should the Company be unable to
meet  agreed-upon  delivery  schedules. The Company has had informal discussions


                                     - 20 -
<PAGE>

with NHS  regarding  the delays in licensure  and product  delivery and believes
that,  based  on  these  discussions  and the  strong  profile  demonstrated  by
NeisVac-C(TRADEMARK)  in clinical trials, the NHS would be willing to reschedule
deliveries  through  the end of 2000 for the  entire 3  million  doses,  without
penalty, if the regulatory approval for  NeisVac-C(TRADEMARK) is issued within a
few months of April 2000, although there can be no assurances in this regard. If
the NHS revises or terminates  its  commitment to purchase  NeisVac-C(TRADEMARK)
under the contract,  the quarterly  operating results will be directly impacted,
for this contract represents the Company's principal source of projected revenue
in 2000. Moreover,  as discussed below,  additional acellular pertussis products
will only be  available in limited  quantities  for sale in 2000 because of time
required for the change over in production  following  the  NeisVac-C(TRADEMARK)
campaign and the product cycle time for producing and releasing aP products.

         All costs  associated with the production of  NeisVac-C(TRADEMARK)  are
expensed as incurred until the vaccine receives  regulatory approval in the U.K.
Therefore,  the Company will continue to record significant  production expenses
without any  corresponding  revenues  until that time.  The Company also expects
initial sales of  NeisVac-C(TRADEMARK)  to be made from inventory produced prior
to regulatory  approval.  Accordingly,  as such  inventory is sold,  the cost of
goods to be reported by the Company would be lower than in  subsequent  periods.
Following regulatory approval, production expenses for NeisVac-C(TRADEMARK) will
be capitalized in accordance with generally accepted  accounting  principles and
recognized as expense when product is sold.

         Quarterly   operating   results   also  will  be  affected  by  various
manufacturing  limitations.  As noted above,  the Company has  experienced  some
problems in the commercial production of NeisVac-C(TRADEMARK). The production of
vaccines is a highly complex,  biological process involving many steps from seed
culture  through final  production.  From time to time, the Company  experiences
disruptions  and production  failures and there can be no assurances  that there
will not be  disruptions  or product  failures.  Any  disruptions  and  failures
increase unit production costs as units are lost in the production  process,  as
well as may limit the  Company's  ability  to meet its  supply  obligations  for
NeisVac-C(TRADEMARK)  under the NHS contract.  In addition,  production expenses
are mainly fixed and consist  primarily of expenses relating to the operation of
the Company's one manufacturing facility and maintaining a ready work force.

         During the second and third  quarters of 2000,  the Company  expects to
have limited  product sales of  Certiva(REGISTERED)  and its aP vaccine from the
minimal, remaining inventories on hand. The majority of this remaining inventory
was made under the  Company's new  production  enhancement  program  designed to
increase  production  capacity and efficiency,  and cannot be sold in the United
States or Europe  until  the  appropriate  regulatory  authorities  approve  the
enhancements.  Accordingly,  these lots were previously  expensed when made, and
the cost of goods to be reported by the Company upon sale of these products will
be  lower  than  in  subsequent  periods.  The  Company  filed  the  appropriate
documentation  with the FDA in the  fourth  quarter of 1999  seeking  regulatory
approval and believes that FDA approval of the  enhancements  will be granted in
the third quarter of 2000. SSI, the Company's  European  partner,  has filed for
regulatory  approval  in its  territory  for  the  DTaP  and  DTaP-IPV  products


                                     - 21 -
<PAGE>

containing  the  bulk aP  vaccine  manufactured  with  the  enhanced  production
process.  The Company  expects that SSI will obtain  regulatory  approval in its
territories  by the end of 2000.  There can be no  assurances  that any of these
regulatory approvals for these production  enhancements will be forthcoming in a
timely manner or at all.

         The  Company  also  has  been  working  to  eliminate  bottlenecks  and
streamline  and strengthen  the product  testing and release  process for its aP
vaccines, thereby reducing production disruptions and failures and enhancing the
reliability of the production  process.  This work will continue to be performed
off-line during the second quarter of 2000, while  NeisVac-C(TRADEMARK) is being
produced in the manufacturing facility. When the enhanced production and testing
processes are fully implemented, the Company believes that unit production costs
before  filling and packaging  will be reduced.  In prior years,  the production
costs for the Company's aP products  exceeded  their net realizable  value,  and
there can be no assurances  that the enhanced  production and testing  processes
will lower the unit production costs or permit the Company to produce sufficient
quantities of vaccine to generate a gross profit,  particularly  in light of the
increased   filling  and  packaging  costs   associated  with  the  decision  to
manufacture   Certiva(REGISTERED)   without  the  preservative  thimerosal,   as
discussed below.

         After   the   Company   produces    sufficient    quantities   of   the
NeisVac-C(TRADEMARK)  to  fulfill  its  contractual  obligations  in the  United
Kingdom,  the Company expects to return to the manufacturing of aP vaccines late
in the third  quarter of 2000,  utilizing  the enhanced  production  and testing
processes.  Because of the lengthy manufacturing and testing cycle, product from
these  manufacturing  runs  will not be  available  for sale  until at least the
fourth  quarter  of 2000.  Until such time as  product  is  available,  sales of
aP-containing products will be made from the limited product inventory currently
on hand.  Accordingly,  the  Company  expects  reduced  sales of these  products
through the third quarter of 2000.  Sales could be further limited in the second
half of 2000 if the  enhanced  production  and  testing  processes  do not  work
properly  upon  startup  of aP  production  or  regulatory  approval  for  these
enhancements  is not  received  in a timely  manner  or at all.  Given  that the
Company expects to continue to alternate  NeisVac-C(TRADEMARK) and aP production
through at least 2001,  the Company  will have limited  time to  manufacture  aP
vaccines,   so  the  Company   intends  first  to  satisfy   SSI's   agreed-upon
requirements,  then supply aP vaccine for clinical  trials of the  Company's new
combination  vaccines,  such as DTaP-IPV  and  AMVAX(REGISTERED),  its  tetanus,
diphtheria  and aP  booster  vaccine  for  adults,  and then  use any  remaining
capacity to manufacture  Certiva(REGISTERED) without thimerosal.  Therefore, the
Company anticipates having lower sales of  Certiva(REGISTERED)  in 2000 and into
2001, and any such sales could be further diminished if the Company is unable to
reach  suitable  distribution   arrangements  to  sell   Certiva(REGISTERED)  to
non-government  purchasers in the United States.  Moreover, the Company does not
expect to have any sales of DTaP-IPV  vaccine in Germany and Austria  until such
time as product is  available  and the  Company  secures a  distributor  for the
vaccine. Any such distribution  arrangements would require the consent of Baxter
under  the terms of the Share  Exchange  Agreement,  as  amended.  Although  the
national  marketing  authorization for the sale and distribution of its DTaP-IPV
vaccine in Germany  and  Austria  has been  completed,  the  Company  and Chiron
Behring  terminated  at the end of 1999 the  distribution  agreement  for  sales
within these countries.

                                     - 22 -
<PAGE>


         As a result of a recent assessment of potential health risks related to
mercury  contained in food and drugs  conducted by the FDA, in cooperation  with
the Environmental Protection Agency, the continued use of thimerosal in vaccines
has been questioned.  Thimerosal is a mercury-containing  preservative  commonly
used in vaccines packaged in multi-dose vials. Thimerosal is approved for use by
the FDA and is  currently  included  in more than 30  licensed  vaccines  in the
United States.  In July 1999, the Company decided to follow the  recommendations
of  these  agencies  and move  toward  the  discontinued  use of  thimerosal  in
Certiva(REGISTERED),  which is licensed in multi-dose vials. The Company intends
to submit data to the FDA on Certiva(REGISTERED)-EU, the European formulation of
Certiva(REGISTERED),  which  does not  contain  thimerosal,  to  facilitate  the
approval and introduction in the United States of a thimerosal-free  formulation
of  the  product  in  single-dose   syringes.   The  Company  previously  filled
Certiva(REGISTERED)  in multi-dose  vials,  so the added costs  associated  with
filling  and  packaging   single-dose   syringes  will  substantially   increase
production  costs on a  per-dose  basis.  If the  Company is not able to pass on
those  additional  costs in the United States  through  increases in the current
selling price of Certiva(REGISTERED), then the Company may not recognize a gross
profit on sales of  Certiva(REGISTERED),  even with full  implementation  of the
enhanced  production and test processes  described above. The Company expects to
submit data to the FDA on a thimerosal-free  formulation of  Certiva(REGISTERED)
before the end of the second  quarter  of 2000 or  shortly  thereafter,  and the
Company will work expeditiously with the FDA to obtain approval,  although there
can be no assurances that such regulatory approval will be received timely or at
all.  The  American  Academy  of  Pediatrics  ("AAP")  has called for the FDA to
expedite the review of manufacturers'  supplemental applications to eliminate or
reduce the mercury content of vaccine products. As noted above, the Company will
in the  interim  continue  to sell  previously  produced  thimerosal  containing
Certiva(REGISTERED) that it has on hand.

         The  Company  does not  anticipate  receiving  any revenue in 2000 from
collaborations unless the Company enters into any new collaborative arrangements
for the research,  development,  marketing and distribution of its products.  In
past years,  the Company has  recognized  revenue  for  milestone  payments  and
development  funding  primarily under  collaborative  agreements with Abbott and
Aventis Pasteur;  however,  with the termination of both of these relationships,
the  Company  will not  receive any  further  funding  under  these  agreements.
Moreover,  under the terms of the Share  Exchange  Agreement,  as  amended,  the
Company  may not  enter  into any  collaborative  arrangement  without  Baxter's
consent  until the  transaction  with Baxter is completed or the Share  Exchange
Agreement, as amended, is terminated.

         In late March 2000, the Company was notified by SSI that SSI is seeking
changes in the terms, primarily with regards to pricing,  quantity,  territories
and  exclusivity  provisions  of its supply  agreements  with the  Company.  The
Company is  currently  in  discussions  with SSI to address its  concerns and is
unable to predict at this time what impact, if any, these proposed changes would
have on the future operations of the Company.

         The foregoing  paragraphs include forward looking statements  including
statements as to: revenue projections;  projection of earnings (losses);  timing
and likelihood of further regulatory approvals;  the Company's ability to timely


                                     - 23 -
<PAGE>


and  efficiently  expand  its  production  capacity  and  lower  unit  costs for
NeisVac-C(TRADEMARK)  and  Certiva(REGISTERED);  the prospects for and timing of
NeisVac-C(TRADEMARK)  production  and  regulatory  filings;  and  the  Company's
ability to address  production  failures  relating to  NeisVac-C(TRADEMARK)  and
Certiva(REGISTERED)  production, among others. The factors that affect the level
of future revenues from product sales include, among other things, the Company's
ability to obtain distribution  partners,  subject to Baxter's consent,  for its
products in the United States and Europe;  the Company's  ability to effectively
position the Company's products against competitive  products (including safety,
efficacy,  and  pricing);  the  Company's  ability to  manufacture  and  deliver
NeisVac-C(TRADEMARK)  and pertussis vaccine products in accordance with customer
orders;  the  timing  and  amount of  product  orders;  and the timing of future
product  launches.  The factors that affect the Company's  ability to timely and
efficiently expand aP production capacity include, among others, the adequacy of
engineering designs, the manufacturing  experience with these enhancements,  the
timeliness of regulatory  review of  modifications,  the  acceptability  of such
modifications  to the  applicable  regulatory  authorities,  and the  ability to
successfully stream line and strengthen the product testing and release process.
There can be no  assurances  that the  Company's  plans to  increase  production
capacity  and  output  will be  effective  or result in  anticipated  production
efficiencies  and  reduced  unit cost or will be  acceptable  to any  regulatory
agency.    The   factors    affecting    timing   for    commercialization    of
NeisVac-C(TRADEMARK) include, among other things, overcoming production problems
in scaling up commercial  production,  results of ongoing clinical  trials,  and
expedited UK regulatory review.

         In  addition,  there  are no  assurances  that the  steps  taken by the
Company to address  production  disruptions  and  failures  and quality  testing
inefficiencies for both  NeisVac-C(TRADEMARK) and the pertussis vaccines will be
effective or that disruptions, failures, and inefficiencies will not continue in
the future.  Production  disruptions,  failures or  inefficiencies  could have a
material  adverse  effect on the Company's  future  operating  results and could
affect the Company's  existing licenses as well as any applications for approval
for its products or the timing of such  approvals.  No  assurances  can be given
that the Company will be successful in  maintaining  consistent  and  continuous
commercial   production  of  its  products.   Further,   because  the  Company's
manufacturing  operations are located principally in one facility, any condition
or event that  adversely  affects the  condition or  operation of such  facility
would have a material  adverse effect on the Company's  financial  condition and
future results of operations.

         PROJECTED CASH REQUIREMENTS FOR OPERATIONS AND FINANCING ACTIVITIES. In
April 2000,  the Company  secured  financing  for up to $45 million,  which will
mature on June 30, 2000. Of that total, $19.5 million was used to repay the loan
to Bank of America,  which was  guaranteed by Baxter.  The  remaining  available
funds are  expected to meet the  Company's  cash  requirements  through June 30,
2000. The second  quarter  2000's cash  requirement is anticipated to be between
$20 and $25  million,  which is much  higher than the $9.0  million  requirement
incurred  in the first  quarter of 2000 due  primarily  to  projected  increased
spending  related  to  NeisVac-C(TRADEMARK)   production,  and  the  semi-annual
interest  payment  of $2.4  million  on the  6.5%  Notes  and the  approximately
$600,000  payment  on the 4.5%  Notes  both due May 2000,  and the  payments  of
approximately  $2.1  million in May 2000 for "stay"  bonuses  under an  employee
retention program.  In addition,  the $6 million  outstanding  balance under the


                                     - 24 -
<PAGE>


line of credit  guaranteed  by  BioChem  must be repaid  by June 30,  2000.  The
Company has also  committed to spend an additional  $1.3 million to be paid July
1, 2000 as part of the  employee  retention  program.  If the  transaction  with
Baxter does not close by June 30, 2000, the Company will be required to raise up
to approximately  $74 million,  or $89 million should the Company be required to
pay breakup fees to Baxter,  in order to finance its operations  through the end
of 2000, service its debt and repay its lines of credit, including the up to $45
million  that would be due to BioChem and Dr. Frost in  connection  with the New
Financing  and the  deferred  financing  fee of up to $11.25  million,  which is
payable on the maturity  date of the New  Financing.  Should the $74-89  million
financing be  required,  the funds would be required on or before July 10, 2000.
This  range  could be  affected  by the timing  and  amount of  additional  cash
requirements   associated   with  the  status  of   commercial   production   of
NeisVac-C(TRADEMARK)  and  incorporates  the  sale of up to $62  million  in the
second half of 2000 of  NeisVac-C(TRADEMARK)  to the NHS. See "Funding Sources."
The foregoing  includes  forward looking  statements and the factors that affect
the actual cash  required for  operations  could  include,  among other  things:
vaccine  production  levels;   regulatory  authorization  to  commence  clinical
investigations;  timing for the commencement of planned clinical trials; and the
level  of  expenditures  for the  Company's  ongoing  research  and  development
program.

         CAPITAL  EXPENDITURES.  Total capital  expenditures for the first three
months  of 2000  were  $150,000.  The  Company  expects  to  spend  a  total  of
approximately  $1.5 million in 2000 for capital  expenditures  on minor  ongoing
facilities' modifications,  systems and equipment related to the acceleration of
the production for  NeisVac-C(TRADEMARK).  The foregoing include forward looking
statements.  The amount of and timing for capital  expenditures  could fluctuate
based upon a number of factors  including,  without  limitation,  the  equipment
purchases required in order to produce NeisVac-C(TRADEMARK);  and the amount and
timing of  unanticipated  costs to  replace  or repair  existing  equipment  and
systems  in  order  to  keep  facilities  operational  and  in  compliance  with
regulatory requirements.

         FUNDING SOURCES.  Given the Company's limited projected revenues in the
second quarter of 2000 and with the termination of the Company's  collaborations
with Abbott and Aventis Pasteur,  the Company's principal source of financing is
the New Financing with BioChem and Dr. Frost. The outstanding  principal balance
under the New Financing totaled approximately $31.2 million at May 12, 2000, and
may be increased up to $45 million through June 30, 2000.

         If the Company is unable to  complete  the  transaction  with Baxter by
June 30,  2000,  the  Company  would be required  to obtain  additional  funding
through a borrowing arrangement with one or more of its affiliates,  through the
sale of debt and/or equity securities  and/or reduce cash  requirements  through
significant  reductions in operating levels. There can be no assurances that the
Company  will be able to  obtain,  in the  timeframe  required,  debt or  equity
financing  on  favorable  terms  or in  amounts  required  to meet  future  cash
requirements and the amounts owed under outstanding lines of credit, or that the
Company,  if  necessary,  would be successful  in reducing  operating  levels or


                                     - 25 -
<PAGE>

effectively  controlling  costs,  or that if operating  levels are reduced,  the
Company would be able to maintain  operations  for any extended  period of time.
Moreover,  under the Share Exchange Agreement,  as amended,  the Company may not
enter into any new financing  arrangements  without  Baxter's  consent until the
transaction  with  Baxter is  completed  or the  Share  Exchange  Agreement,  as
amended, is terminated.

           Under the Share Exchange Agreement,  as amended, the Company also has
agreed  to pay  Baxter's  out-of-pocket  expenses  up to $1  million  if  Baxter
terminates the Share Exchange  Agreement,  as amended, as a result of either the
Company's breach of a covenant in the Share Exchange  Agreement,  as amended, or
an intentional  breach by the Company of any  representation  or warranty in the
Share Exchange Agreement,  as amended. The Company has also agreed to pay Baxter
a  termination  fee of $14 million and  reimburse  Baxter for its  out-of-pocket
expenses  up to $1 million  if the Share  Exchange  Agreement,  as  amended,  is
terminated under any of the following circumstances:

     o    Baxter terminates the Share Exchange  Agreement,  as amended,  because
          the Company's board withdraws or modifies its recommendation as to the
          Share Exchange Agreement, as amended, or the arrangement resolution or
          resolves  to  do  so,  or  the  Company   fails  to  comply  with  the
          non-solicitation  provisions  of  the  Share  Exchange  Agreement,  as
          amended, or the Company's board recommends an alternative  transaction
          or fails to reconfirm its recommendation of the arrangement;

     o    either Baxter or the Company terminates the Share Exchange  Agreement,
          as amended,  after June 30, 2000 or because the Company's shareholders
          fail to approve the  arrangement,  and,  in each case,  at the time of
          such termination or failure to approve the transaction, an alternative
          transaction exists; or

     o    Baxter  terminates  the Share  Exchange  Agreement,  as amended,  as a
          result of either a breach by the  Company of a  covenant  in the Share
          Exchange  Agreement,  as  amended,  or an  intentional  breach  by the
          Company  of  a  representation  or  warranty  in  the  Share  Exchange
          Agreement,  as  amended,  and, at the time of  termination,  either an
          alternative  transaction  exists or has been  proposed,  or within one
          year after  termination,  the Company is acquired by another entity or
          enters into an acquisition agreement with another entity.

         In  addition,  the Company  has been  notified  by the  American  Stock
Exchange  ("Exchange") that it was considering  delisting the Company because of
non-compliance  with its listing  requirements.  The  Exchange  has deferred its
judgment  on  delisting.   If  the  proposed  transaction  with  Baxter  is  not
progressing  or  consummated,  then the Exchange has requested  that the Company
provide it with additional information regarding its financial condition.

         While the foregoing  paragraphs  contain a  description  of the factors
affecting the Company's  business  prospects and risk factors  affecting  future
operations,  reference  also is made to the risk  factors and other  information
described in the Company's other filings with the SEC, including the 1999 Annual


                                     - 26 -
<PAGE>


Report  on  Form  10-K,  for a  more  complete  description  of  the  risks  and
uncertainties affecting the Company and its business.

TAX AND REPORTING MATTERS
-------------------------

         At December 31, 1999, the Company and its  subsidiaries  had income tax
loss carry  forwards of  approximately  $52.4 million to offset future  Canadian
source income and  approximately  $114.3  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 it  intends  to, and  believes  that it can,
generate  sufficient other income to avoid being classified as a PFIC. This is a
forward looking statement and the factors affecting this classification include,
among other  things,  the timing and amount of revenue from product  sales;  the
timing and amount of license fees,  milestone  payments and development  funding
under any license,  marketing,  distribution  and  development  agreements;  the
classification of payments received by the Company as active or passive; and the
classification of the Company's assets as active or passive.

         In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related  Information."  The Company has determined  that it
currently does not have reportable segments. There were $526,000 and $796,000 of
product  sales in the United  States for the  quarters  ended March 31, 2000 and
1999,  respectively.  Product sales to Europe,  which were all made to SSI, were
approximately  $0 million and $363,000 for the quarters ended March 31, 2000 and
1999,  respectively.  All  products  are  currently  being  manufactured  at the
Company's one production  facility in the United States. The production process,
and ultimately  product costing,  is primarily the same for all of the Company's
aP vaccine  products sold in the United States and Europe.  Because of this, and
the  relative  consistency  in  selling  prices,  as well as the  nature  of the
distribution methods utilized by the Company, the Company does not differentiate
and manage its business along geographic lines.

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

         The Year 2000 issue is the result of computer  programs  being  written
using two digits rather than four to define the applicable year.  Management has
completed a Company-wide  program that prepared the Company's  computer  systems
and programs for the Year 2000.  The internal  systems used to run the Company's
business run  principally  on  third-party  hardware and software.  To date, the
Company has not  experienced  any Year  2000-related  problems that could have a
material  adverse  effect on the  future  results  of  operations  or  financial
condition of the Company; however, there can be no assurances such problems will
not surface in the next few months.  Additionally,  the failure of suppliers and
other   companies  doing  business  with  the  Company  to  maintain  Year  2000


                                     - 27 -
<PAGE>

qualification in a manner  compatible with the Company's systems could also have
a material  adverse effect on the Company.  The Company does not believe that it
will incur any material costs in the future because of date related problems.

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

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

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

         The Company had $75.3  million of 6.5% Notes at March 31,  1999,  which
bear  interest at 6.5% per annum and mature in May 2003.  The  Company  does not
have significant  exposure to changing  interest rates related to the 6.5% Notes
because the interest rate on these notes is fixed.

         The  Company has drawn down a total of $6 million  under the  revolving
line of credit  guaranteed  by  BioChem.  The loans bear  interest at LIBOR plus
2.65% basis points,  which are at  approximately  8.9% as of May 12, 2000.  Each
draw under the line is an  individual  revolving  loan.  New interest  rates and
periods will be determined when these loans mature. The entire principal balance
on the line of credit  must be repaid no later than June 30,  2000.  The Company
has exposure to changing  interest  rates  related to the $6 million of debt but
does not deem it material due to the time limitations on the borrowing.

           The Company  has drawn down $31.2  million as of May 12, 2000 under a
revolving  line of credit with  BioChem and Dr.  Phillip  Frost.  The loan bears
interest  at the annual  rate of 15%.  The  Company  does not have  exposure  to
changing  interest  rates  related  to the $31.2  million  of debt  because  the
interest rate on this credit facility is fixed.

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

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


                                     - 28 -
<PAGE>

effect on the fair value of the Company's long-term  convertible debt, revolving
lines of credit or its short-term cash investments.

         The Company does  principally all of its  transactions in U.S.  dollars
and  currently  has  limited  payment  obligations  in Swedish  Krona and Danish
Kroner;  however, such obligations are not material to the Company's operations.
The  Company's  contract  with the  U.K.  for  sale of  NeisVac-C(TRADEMARK)  is
denominated  in  British  Pounds  Sterling.   The  value  of  this  contract  is
approximately (pound)40 million or approximately $62 million at May 4, 2000. The
contract  is  contingent  upon the Company  receiving  regulatory  approval  for
NeisVac-C(TRADEMARK)  in the U.K. The Company has exposure to changing  exchange
rates  between the dollar and the British Pound  Sterling.  A  hypothetical  ten
percent  change in the market  exchange  rate over the  remaining  eight  months
ending December 31, 2000 could result in a reduction of up to approximately $4.1
million in potential  revenue from this contract.  The Company intends to reduce
risk to possible  changes in exchange  rates between the  currencies by possibly
entering into a hedging transaction before the effective date of the contract.











                                     - 29 -
<PAGE>


                           PART II. OTHER INFORMATION

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

(a)      Exhibits

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

         10.60                 Amendment No. 1 to Share Exchange Agreement dated
                               as of April 17, 2000 (1)
         10.61                 Amendment No. 1 to Shareholder Agreement dated as
                               of  April 17,  2000, among Baxter,  BioChem,  and
                               certain other shareholders of the Company (1)
         10.62                 Amended and Restated  Warrant  Termination Letter
                               dated April 17, 2000 (1)
         10.63                 Assignment,  Acceptance  and Amendment  Agreement
                               dated as  of  April 17, 2000,  among the  Bank of
                               America, N.A., BioChem, the  Company, Baxter, and
                               Dr. Phillip Frost (1)
         27                    Financial Data Schedule

         (1)  Incorporated  herein by reference to the Company's  Current Report
              on Form 8-K, dated March 30, 2000.

(b)      Reports on Form 8-K

         The Company filed with the Securities and Exchange Commission a Current
         Report on Form 8-K dated March 16, 2000,  under Items 5 and 7 reporting
         the  issuance  of  two  press  releases  regarding  the  status  of its
         acquisition by Baxter.

         The Company filed with the Securities and Exchange Commission a Current
         Report on Form 8-K dated March 30, 2000,  under Items 5 and 7 reporting
         the  settlement  of a lawsuit  brought by Sharon  Mates,  the Company's
         former  President,  extensions  related to the Company's line of credit
         with  Bank  of  America,  N.A.,  an  amendment  of the  Share  Exchange
         Agreement under which Baxter  proposes to acquire the Company,  and the
         securing of a new line of credit with BioChem and Dr. Phillip Frost for
         up to $45 million  which  includes the  assignment  by Bank of America,
         N.A.  to  BioChem of the rights  and  obligations  associated  with the
         approximately  $19.5 million  utilized by the Company under the line of
         credit with Bank of America, N.A.





                                     - 30 -
<PAGE>



                                   SIGNATURES

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


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


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


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







Date:  May 15, 2000


                                     - 31 -