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 June 30, 1997

                                       OR

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

             For the transition period from ____________ to ____________

                         Commission file number 1-10451

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

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

12103 Indian Creek Court, Beltsville, Maryland              20705
----------------------------------------------              -----
   (Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code:  (301) 419-8400


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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
Yes  X    No
    ---      ---

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

Common Stock, no par value, outstanding as of July 29, 1997 -- 31,619,982 shares


<PAGE>



                                TABLE OF CONTENTS


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

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

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

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

          Consolidated Statement of Shareholders' Equity...............   6

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

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

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations................  12


PART II.  OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders..........  22

Item 6.   Exhibits and Reports on Form 8-K.............................  23


SIGNATURES ............................................................  24










                                       2
<PAGE>

                          PART I. FINANCIAL INFORMATION


ITEM 1.   FINANCIAL STATEMENTS

The following unaudited,  condensed  consolidated  financial statements of North
American  Vaccine,  Inc. and Subsidiaries  (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and,  therefore,  omit or condense
certain  footnotes  and  other   information   normally  included  in  financial
statements prepared in accordance with generally accepted accounting principles.
This report should be read in  conjunction  with the Company's  Annual Report on
Form 10-K  filed  for the year  ended  December  31,  1996.  In the  opinion  of
management,  all adjustments  (consisting only of normal recurring  adjustments)
necessary for a fair  presentation of the financial  information for the interim
periods  reported have been made.  Results of  operations  for the three and six
months ended June 30, 1997,  will not  necessarily  be indicative of the results
for the entire  fiscal year ending  December 31, 1997.









                                       3
<PAGE>

NORTH  AMERICAN VACCINE,  INC. AND  SUBSIDIARIES
CONSOLIDATED  BALANCE SHEETS
(In  thousands, except share and per share data)

                                                       June 30,     December 31,
                                                         1997           1996
                                                     -----------   -------------
ASSETS                                               (Unaudited)
------
Current assets:
  Cash and cash equivalents                           $  60,142     $    70,881
  Accounts receivable                                       194           4,166
  Inventory                                               2,058           1,782
  Prepaid expenses and other current assets                 614             533
                                                      ----------     -----------
       Total current assets                              63,008          77,362

Property, plant and equipment, net                       36,830          40,629
Investment in affiliate, at market                        1,398           1,281
Deferred financing costs, net                             2,932           3,184
Other assets                                                421             506
                                                      ----------     -----------
   Total assets                                       $  104,589     $  122,962
                                                      ==========     ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
  Accounts payable                                    $   1,354      $    1,912
  Deferred revenue                                        4,775           3,000
  Obligation under capital lease, current portion         1,570           1,496
  Other current liabilities                               5,293           4,540
                                                      ----------     -----------
      Total current liabilities                          12,992          10,948

6.50% Convertible subordinated notes, due May 1, 2003    86,250          86,250
Obligation under capital lease, net of current portion    5,068           5,871
Deferred rent credit, net of current portion                 63             114
                                                      ----------     -----------
  Total liabilities                                     104,373         103,183

Commitments and contingencies

Shareholders' equity:
 Preferred stock, no par value; unlimited shares
   authorized-
   Series A, convertible; issued and outstanding
   2,000,000 shares;
   entitled to Can $2.50 per share in liquidation         6,538           6,538
 Common stock, no par value; unlimited shares
   authorized; issued 31,616,805 shares at
   June 30, 1997 and 31,406,999 shares at
   December 31, 1996                                     75,032          71,357
 Unrealized investment holding gain                         770             653
 Accumulated deficit                                    (82,124)        (58,769)
                                                      ----------     -----------
    Total shareholders' equity                              216          19,779
                                                      ----------     -----------
  Total liabilities and shareholders' equity          $ 104,589      $  122,962
                                                      ==========     ===========

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


                                       4
<PAGE>

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


                                    Three Months Ended      Six Months Ended
                                          June 30,              June 30,
                                   1997        1996        1997         1996
                                 ----------  ----------  ---------  -----------

Revenues:
  Product sales                  $     368   $      499  $    913   $     727
  Marketing, research and 
    development agreements             695            -     1,225           -
                                 ----------  ----------  --------   -----------
           Total revenues            1,063          499     2,138         727
                                 ----------  ----------  --------   -----------

 Operating expenses:
   Production                        4,327        3,764     8,634       6,696
   Research and development          4,838        2,889     9,515       5,566
   General and administrative        2,310        1,746     5,702       3,227
                                -----------  ----------  --------   -----------
       Total operating expenses     11,475        8,399    23,851      15,489
                                -----------  ----------  --------   -----------

 Operating loss                    (10,412)     (7,900)  (21,713)     (14,762)

 Other income (expenses):
   Gain on sale of investment
      in affiliate                       -           -         -        4,228
   Interest and dividend income        857         723     1,750          842
   Interest expense                 (1,693)       (925)   (3,392)        (925)
                                -----------  ----------  ---------  -----------
 Net loss                       $  (11,248)  $  (8,102)  $(23,355)  $ (10,617)
                                ===========  ==========  =========  ===========

 Net loss per share             $    (0.36)  $   (0.26)  $  (0.74)  $   (0.35)

 Weighted-average number of
   common shares outstanding        31,608       30,591    31,593      30,515




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


                                       5
<PAGE>
<TABLE>
<CAPTION>

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


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

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

Exercises of stock options         -        -       205      2,252            -            -        2,252
Shares issued under
  401(k) plan                      -        -         5        110            -            -          110
Stock option compensation          -        -         -      1,313            -            -        1,313
Increase in market value
  of investment                    -        -         -          -          117            -          117
Net loss                           -        -         -          -            -      (23,355)     (23,355)
                             --------  -------   -------- ---------    ---------  -----------   ----------
Balance, June 30, 1997         2,000   $6,538    31,617   $ 75,032     $    770   $  (82,124)   $     216
                             ========  =======   ======== =========    =========  ===========   ==========

</TABLE>



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



                                       6
<PAGE>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


                                                        Six Months Ended
                                                            June 30,
                                                        1997           1996
                                                     -----------   -----------

Cash flows from operating activities:
  Net loss                                            $(23,355)      $(10,617)
  Adjustments to reconcile net loss to net cash
  used in operating activities:
    Gain on sale of investment  in affiliate                 -         (4,228)
    Loss on disposal of equipment                            -            (15)
    Depreciation and amortization                        5,430          2,411
    Amortization of deferred financing costs               252             84
    Contribution of common stock to 401(k) plan            110             83
    Stock option compensation                            1,313              -
    Decrease  in other assets                               84             33
    Decrease in deferred rent                              (45)           (40)
    Cash flows provided by other working capital
    items                                                5,580            562
                                                     -----------   -----------
      Net cash used in operating activities            (10,631)       (11,727)
                                                     -----------   -----------

Cash flows from investing activities:
    Capital expenditures                                (1,631)        (2,271)
    Proceeds from sale of investment in affiliate            -          5,199
    Proceeds from sale of equipment                          -             15
                                                     -----------   -----------
      Net cash (used in) provided by investing
      activities                                        (1,631)         2,943
                                                     -----------   -----------

Cash flows from financing activities:
    Proceeds from issuance of convertible notes              -         86,250
    Deferred financing costs of convertible notes            -         (3,519)
    Proceeds from exercises of stock options             2,252          2,262
    Principal payments on capital lease obligation        (729)             -
                                                     -----------   -----------
      Net cash provided by financing activities          1,523         84,993
                                                     -----------   -----------

Net (decrease) increase in cash and cash equivalents   (10,739)        76,209
Cash and cash equivalents, beginning of period          70,881         10,443
                                                     -----------   -----------
Cash and cash equivalents, end of period              $ 60,142       $ 86,652
                                                     ===========   ===========





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)

                                                        Six Months Ended
                                                             June 30,
                                                         1997           1996
                                                     ------------    ----------

Cash Flows Provided By Other Working Capital Items:

    Decrease (increase) in :
       Accounts receivable                           $    3,972       $  1,269
       Inventory                                           (276)           553
       Prepaid expenses and other current assets            (80)        (1,328)

    Increase (decrease) in :
       Accounts payable                                    (558)        (1,632)
       Other current liabilities                          2,522          1,700
                                                     -----------      ---------
    Net cash provided by other working capital items $    5,580       $    562
                                                     ===========      =========


 Supplemental Disclosure of Cash Flow Information:

 Cash paid for interest                              $    3,148       $      5
                                                     ===========      =========





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



                                       8

<PAGE>



                  NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.  BUSINESS

The Company is engaged in the  research,  development,  production,  and sale of
vaccines for the  prevention of infectious  diseases in children and adults.  In
1996,   regulatory   approval  of  the  Company's  acellular  pertussis  vaccine
formulated  as a DTaP  vaccine for the  prevention  of  diphtheria,  tetanus and
pertussis  (whooping cough) was granted in Sweden, and regulatory  approval of a
combined  DTaP-IPV  (polio)  vaccine was granted in Denmark.  In April 1997, the
Medical Products Agency of Sweden granted regulatory  approval for the Company's
monovalent  acellular  pertussis  (aP)  vaccine to vaccinate  children,  thereby
expanding the market for the Company's aP vaccine.  The Company has not received
approval  from  the  U.S.  Food and Drug  Administration  ("FDA")  or any  other
regulatory  authority  to  market  its DTaP  vaccine  or any  other  product  in
development.

2.  SIGNIFICANT ACCOUNTING POLICIES

(a) BASIS OF  ACCOUNTING  AND  CURRENCY.  The Company is a Canadian  corporation
incorporated under the Canadian Business Corporations Act ("CBCA") on August 31,
1989. The accompanying  consolidated  financial statements have been prepared in
accordance with generally accepted accounting  principles ("GAAP") in the United
States and are  denominated in U.S.  dollars,  because the Company  conducts the
majority of its transactions in this currency.  The application of Canadian GAAP
would  not  result  in  material  adjustments  to  the  accompanying   financial
statements  except for the impact of the  adoption  of  Statement  of  Financial
Accounting   Standards   ("SFAS")  No.  115.  The  effect  of  foreign  currency
translation has been immaterial.

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

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


                                       9
<PAGE>



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

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

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

3.  INVENTORIES

Inventories  are stated at the lower of cost  (first-in,  first-out)  or market.
Components  of  inventory  cost  include  materials,  labor,  and  manufacturing
overhead.  Production  costs  attributable  to  a  product  are  expensed  until
regulatory  approval is obtained for such  product.  Inventories  consist of the
following:

                                            June 30,            December 31,
                                              1997                  1996
                                           ---------            ------------
                                                     (in thousands)
                Raw materials              $ 1,581                $ 1,518
                Work-in-process                  -                    162
                Finished goods                 477                    102
                                           -------                 ------
                     Total                 $ 2,058                $ 1,782
                                           =======                =======






                                       10

<PAGE>

4.  OTHER CURRENT LIABILITIES


Other current liabilities consisted of the following components:

                                             June 30,             December 31,
                                               1997                   1996
                                           ----------             ------------
                                                     (in thousands)
Payroll and fringe benefits                $ 1,536                  $ 1,114
Accrued interest payable                       993                      999
Reserve for contract loss                      720                      720
Accrued taxes                                  608                      608
Accrued costs of clinical trials               387                      421
Accrued construction costs                     295                      192
Accrued consulting and professional fees       164                      144
Deferred rent credit                           101                       95
Other accrued liabilities                      489                      247
                                           -------                  -------
     Total other current liabilities       $ 5,293                  $ 4,540
                                           =======                  =======


5.  SHAREHOLDERS' EQUITY

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







                                       11
<PAGE>


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

         THE  FOLLOWING  PARAGRAPHS  IN THIS FORM 10-Q CONTAIN  CERTAIN  FORWARD
LOOKING  STATEMENTS,  WHICH ARE WITHIN THE  MEANING OF AND MADE  PURSUANT TO THE
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES  LITIGATION REFORM ACT OF 1995.
THESE FORWARD LOOKING STATEMENTS INCLUDE,  WITHOUT  LIMITATION,  THOSE REGARDING
THE  PROSPECTS  FOR  REGULATORY  APPROVAL,   THE  PROSPECTS  FOR  MARKETING  AND
DISTRIBUTION OF VACCINE PRODUCTS, THE PROSPECTS FOR AND FACTORS AFFECTING FUTURE
REVENUES AND PROFITABILITY,  FUTURE COMPLIANCE WITH FINANCIAL  COVENANTS UNDER A
DEBT  OBLIGATION,  LIKELIHOOD OF ADDITIONAL  FUNDING UNDER  LICENSE,  MARKETING,
DISTRIBUTION  AND/OR  DEVELOPMENT  AGREEMENTS,   CASH  REQUIREMENTS  FOR  FUTURE
OPERATIONS,  AND PROJECTED  CAPITAL  EXPENDITURES.  READERS ARE  CAUTIONED  THAT
FORWARD LOOKING  STATEMENTS INVOLVE RISKS,  UNCERTAINTIES,  AND FACTORS 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 BY REGULATORY AGENCIES INCLUDING THE FDA; THE PRODUCTION OF
VACCINES; THE NATURE OF COMPETITION; NEED FOR EFFECTIVE MARKETING; DEPENDENCE ON
SUPPLIERS,  INCLUDING  STATENS  SERUMINSTITUT;  AND  UNCERTAINTIES  RELATING  TO
CLINICAL  TRIALS,  ALL AS  DISCUSSED  IN THE  COMPANY'S  FILINGS  WITH  THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"),  INCLUDING THE 1996 ANNUAL REPORT ON
FORM 10-K, TO WHICH THE READER'S ATTENTION IS DIRECTED.

BACKGROUND

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

         In February  1996, the Swedish  Ministry of Health  granted  regulatory
approval to market the Company's  acellular  pertussis  vaccine  formulated as a
combined DTaP vaccine for the prevention of diphtheria,  tetanus,  and pertussis
(whooping cough). This marketing authorization was the first regulatory approval
for any of the Company's products. In April 1997, the Swedish Ministry of Health
granted regulatory  approval for the Company's  monovalent  acellular  pertussis
(aP)  vaccine  to  vaccinate  children,  thereby  expanding  the  market for the
Company's aP vaccine.  In addition,  the Danish National Board of Health granted
regulatory approval in September 1996 of a combined DTaP-IPV (polio) vaccine for
all  primary  and booster  doses for  infants  and  children  in  Denmark.  This
combination  vaccine,   which  combines  the  DTaP  vaccine  with  an  enhanced,
inactivated   polio  vaccine   ("IPV"),   was   developed   jointly  by  Statens
Seruminstitut ("SSI") and the Company.

         Under  supply  agreements,   the  Company  manufactures  the  acellular
pertussis  component,  and SSI  manufactures  the  diphtheria,  tetanus  and IPV
components  for the DTaP  and  DTaP-IPV  vaccines.  SSI is  responsible  for the
marketing  and   distribution   of  the  DTaP  and  DTaP-IPV   products  in  the
Scandinavian,  Baltic  and other  countries  comprising  its  territory  ("SSI's
Territory").  Accordingly,  the Company has been selling its acellular pertussis
toxoid to SSI for  formulation  into DTaP and  DTaP-IPV  for sale in Sweden  and
Denmark,  respectively.  In  addition,  during the fourth  quarter of 1996,  the
Company executed a supply and distribution agreement with Chiron Behring




                                       12
<PAGE>

("Chiron Behring") covering the Company's DTaP and DTaP-IPV  vaccines in Germany
and Austria ("Chiron Behring's Territory").

         In 1995 and 1996, the Company recognized  development revenues pursuant
to agreements with Pasteur-Merieux Serums et Vaccins, a wholly-owned  subsidiary
of  Rhone-Poulenc,  which  operates  in North  America  through  its  subsidiary
Connaught  Laboratories ("Pasteur  Merieux-Connaught"),  under which the Company
and Pasteur Merieux-Connaught will jointly develop the Company's meningococcus B
vaccine.   Additional  funding  may  be  provided  to  the  Company  by  Pasteur
Merieux-Connaught  under  the  terms of the  license  and  clinical  development
agreements. See "Outlook," below.

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

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

         In  November   1996,   the  Company   acquired  a  35,000  square  foot
manufacturing  facility in Beltsville,  Maryland.  That acquisition included the
purchase and lease of equipment and leasehold improvements and the assumption of
real estate leases.  The total  acquisition cost for the equipment and leasehold
improvements was approximately  $24.9 million,  which included a cash payment of
$17.2 million.  The balance of $7.7 million is represented by an equipment lease
obligation  accounted for as a capital lease,  which expires in 2000.  Under the
equipment  lease  agreement  there are  financial  covenants  that  obligate the
Company to maintain  certain  minimum cash and  investment  balances,  a minimum
tangible net worth (defined to include amounts under the outstanding convertible
subordinated  notes) and certain other  financial  ratios.  The Company would be
required to post an irrevocable  letter of credit for  predetermined  amounts at
such  time as the  Company  is not in  compliance  with any of  these  financial
covenants.  The Company  believes  that it can  maintain  compliance  with these
financial  covenants for the remainder of 1997, although there are no assurances



                                       13
<PAGE>

in this regard.  This is a forward looking statement and the factors that affect
the Company's  ability to maintain  compliance  with these  financial  covenants
include,  among other things, the Company's ability to control costs, manage its
cash  resources  and the magnitude and timing of product sales and payments from
license,  marketing,  distribution and development agreements.  In addition, the
Company has assumed the real estate leases  underlying  the facility,  which are
scheduled to expire in February 2001, but may be extended through 2011.

         The Company had 245 and 184 full-time employees as of June 30, 1997 and
1996, respectively.


RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1997 AND 1996

         In 1997, the Company recognized  $368,000 in revenue from product sales
to SSI and  $695,000  under  collaborative  agreements.  Revenue in 1996 is from
product sales to SSI.

         Production  expenses were $4.3 million in 1997 compared to $3.8 million
in 1996. The increase in these expenses in 1997 is due to increases in materials
and labor, as the Company prepares for regulatory approval of CERTIVA(TRADEMARK)
in the United States. The increase in labor cost is attributable primarily to an
increase in the number of employees.  Production costs attributable to a product
are expensed until regulatory approval is obtained for such product.

         Research  and  development  expenses  increased to $4.8 million in 1997
from $2.9  million in 1996.  The  increase is  attributable  primarily to higher
depreciation  and operating costs of the Company's newly acquired  facility and,
to a lesser extent, labor as a result of an increase in the number of employees.
These  increases  were  offset in part by lower  clinical  testing  and  related
expenses.

         General  and  administrative  expenses  were  $2.3  million  in 1997 as
compared to $1.7 million in 1996.  The increase is primarily due to higher labor
as a result of an increase in the number of employees and  professional  service
costs.

         Interest  and  dividend  income  increased  to  $857,000  in 1997  from
$723,000 in 1996. This increase is due primarily to higher average cash balances
during 1997 as compared to 1996 as a result of the  placement of $86.25  million
convertible   subordinated  notes  in  May  1996.  See  "Liquidity  and  Capital
Resources," below.

         Interest  expense  increased to $1.7  million in 1997 from  $925,000 in
1996.  The  increase  is  due  primarily  to  interest   obligations  under  the
convertible subordinated notes and an equipment lease accounted for as a capital
lease.

         The  factors  cited above  resulted  in a net loss of $11.2  million or
$0.36 per share in 1997 as compared  to a net loss of $8.1  million or $0.26 per
share in 1996. The weighted-average number of common shares outstanding was 31.6



                                       14
<PAGE>

million for 1997  compared to 30.6 million for 1996.  The increase in the number
of  weighted-average  shares  outstanding  for  1997  as  compared  to  1996  is
attributable  primarily to the exercise of stock options and the sale of 350,000
shares  of the  Company's  Common Stock to Abbott in the fourth quarter of 1996.


SIX MONTHS ENDED JUNE 30, 1997 AND 1996

         In 1997, the Company recognized  $913,000 in revenue from product sales
to SSI and $1.2 million under collaborative agreements.  Revenue in 1996 is from
product sales to SSI.

         Production  expenses were $8.6 million in 1997 compared to $6.7 million
in 1996. The increase in these expenses in 1997 is due to increases in materials
and labor, as the Company prepares for regulatory approval of CERTIVA(TRADEMARK)
in the United States. The increase in labor cost is attributable primarily to an
increase in the number of employees.  Production costs attributable to a product
are expensed until regulatory approval is obtained for such product.

         Research  and  development  expenses  increased to $9.5 million in 1997
from $5.6  million in 1996.  The  increase is  attributable  primarily to higher
depreciation  and operating costs of the Company's newly acquired  facility and,
to a lesser extent, labor and supplies, as a result of an increase in the number
of employees.  These increases were offset in part by lower clinical testing and
related expenses.

         General  and  administrative  expenses  were  $5.7  million  in 1997 as
compared  to  $3.2  million  in  1996.  The  increase  is  primarily  due to the
recognition of non-cash compensation expense in the amount of approximately $1.3
million  related to the extension of the term of one expiring  stock option and,
to a lesser extent,  higher labor costs as a result of an increase in the number
of employees and professional service costs.

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

         Interest  and  dividend  income  increased to $1.8 million in 1997 from
$842,000 in 1996. This increase is due primarily to higher average cash balances
as a result of the placement of $86.25 million convertible subordinated notes in
May 1996. See "Liquidity and Capital Resources," below.

         Interest  expense  increased to $3.4  million in 1997 from  $925,000 in
1996  due  to  the  Company's   interest   obligations   under  the  convertible
subordinated notes and an equipment lease accounted for as a capital lease.

         The  factors  cited above  resulted  in a net loss of $23.4  million or
$0.74 per share in 1997 as compared to a net loss of $10.6  million or $0.35 per
share in 1996.  Without  the  effect  of the  non-cash  expense  related  to the



                                       15
<PAGE>

extension  of an  expiring  stock  option,  the net loss in 1997 would have been
$22.0  million or $0.70 per share.  Without the $4.2 million gain on the sale of
investment  securities,  the net loss per share for 1996 would have been  $0.49.
The  weighted-average  number of common shares  outstanding was 31.6 million for
1997  compared  to  30.5  million  for  1996.  The  increase  in the  number  of
weighted-average shares outstanding for 1997 as compared to 1996 is attributable
primarily to the exercise of stock options and the sale of 350,000 shares of the
Company's Common Stock to Abbott in the fourth quarter of 1996.

LIQUIDITY AND CAPITAL RESOURCES

         In May 1996,  the Company  completed  an offering of 6.50%  convertible
subordinated  notes in the principal  amount of $86.25  million due May 1, 2003.
The net proceeds from this offering were approximately  $82.7 million.  Interest
on the notes is payable  semiannually  on May 1 and  November  1 each year.  The
notes are convertible  into shares of the Company's Common Stock, at the initial
conversion  price  of  approximately  $24.86  per  share.  The  notes  also  are
subordinated  to present and future senior  indebtedness of the Company and will
not  restrict  the  incurrence  of future  senior or other  indebtedness  by the
Company.  The notes are  redeemable,  in whole or in part,  at the option of the
Company on or after May 1, 1999 at certain  pre-established  redemption  prices,
plus  accrued  interest.  Upon a change in  control,  the Company is required to
offer to purchase all or part of the notes then  outstanding at a purchase price
equal to 100% of the principal  amount  thereof,  plus interest.  The repurchase
price is  payable  in cash or, at the  option of the  Company,  in shares of the
Company's Common Stock. The Company has filed a registration  statement with the
U.S. Securities and Exchange Commission registering resales of the notes and the
underlying shares of Common Stock, which has been declared effective.

         The Company's cash  requirement for operations was $11.3 million in the
second quarter of 1997 as compared to $6.4 million in the first quarter of 1997.
The Company's cash  requirement for operations is the net cash used in operating
activities for the period being reported less amounts  received under marketing,
research  and  development  agreements  and  further  adjusted  by the timing of
proceeds  from the sale of  investments  in  affiliates.  The  increase  in cash
requirements  for the second quarter is attributable  to a semi-annual  interest
payment of $2.8 million on the  convertible  subordinated  notes made during the
second quarter of 1997,  and, to a lesser  extent,  a reduction in the amount of
accounts  payable and accrued  expenses.  At June 30, 1997, the Company had cash
and cash equivalents of approximately $60.1 million and investment securities in
an affiliate  with a market value of $1.4  million.  The  investment  securities
consisted of 125,000 shares of IVAX common stock. The fair market value of these
investment securities as of July 29, 1997 was approximately $1.2 million.  These
investments  are volatile and therefore  subject to significant  fluctuations in
value.

         The Company  anticipates  that cash  requirements for operations in the
third  quarter of 1997 will be between  approximately  $8 and $10 million as the
Company: produces its acellular pertussis vaccine for commercial sale in Europe;
produces  CERTIVA(TRADEMARK) in anticipation of or following regulatory approval




                                       16
<PAGE>

in the United States and other territories; produces investigational combination
vaccines and conjugate vaccines; and conducts clinical trials. Thereafter, it is
presently  anticipated  that quarterly  cash  requirements  for operations  will
depend  principally  upon  the  level of  vaccine  production,  costs to  market
CERTIVA(TRADEMARK)  upon approval,  the level of expenditures  for the Company's
ongoing research and development  program,  and the timing of interest  payments
due on the convertible  subordinated  notes described  above.  The foregoing are
forward looking  statements.  There are no assurances that the Company will meet
the  projections  for  cash  requirements  for  operations,   that  any  further
regulatory  approvals will be received as projected,  that the milestones  under
existing marketing and research and development  agreements will be achieved, or
that, if such milestones are obtained,  they will  contribute  materially to the
quarterly  cash  requirements.   Failure  or  significant  delays  in  receiving
additional  regulatory approvals and meeting milestones would have a significant
adverse effect on the Company's future financial position.

         Total  capital  expenditures  for the  first  half of  1997  were  $1.6
million.  Total  projected  capital  expenditures  for the remainder of 1997 are
expected to be less than $3.0 million.  Capital  expenditures,  exclusive of any
future real estate  acquisition or build-out plans, could fluctuate based upon a
number of  factors  including:  the  Company's  ability  to meet  demand for its
licensed products from its existing facilities; the Company's ability to produce
sufficient  quantities of investigational  products in its existing  facilities;
and unanticipated  costs to replace or repair existing  equipment and systems in
order to keep the  manufacturing  and development  facilities  operational or in
compliance with regulatory  requirements.  The Company continues to evaluate its
need to build-out, lease or acquire additional research, development, production
and other facilities to accommodate the Company's  expanding vaccine development
program. The Company has no present agreements, commitments or understandings in
respect of any additional facilities and the total capital expenditures for such
a project will vary substantially  depending upon a number of factors including,
among other  things,  the size of such  facilities,  the  equipment  and systems
requirements  for  the  facilities,   location,   zoning  and  other  government
restrictions and the magnitude of available financing.

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

                                       17


<PAGE>


OUTLOOK

         The Company  recognized an operating loss of $23.4 million in the first
half of 1997 based on revenues of $2.1 million  from  product  sales and under a
development agreement. The Company anticipates that the remaining 1997 quarterly
operating  results may  fluctuate  significantly  based upon a number of factors
including,  among other things:  the magnitude of product sales for distribution
in Europe;  the timing of FDA approval for and the  commercial  introduction  of
CERTIVA(TRADEMARK);  the ability of the Company and its  distributors to compete
against  competitive  products,  several  of which  have been  approved,  and to
effectively market and sell products in their respective territories;  the sales
prices  established  for  products  by the  Company  and its  distributors;  the
efficiency of production; the Company's ability to produce sufficient quantities
of  CERTIVA(TRADEMARK);  the timing of the payments  under  license,  marketing,
distribution  and/or development  agreements with third parties;  the ability of
the Company to  manufacture  and deliver  products in  accordance  with customer
orders;  the timing and costs associated with clinical trials and post-licensure
testing of the Company's products;  the timing and amount of funding that may be
received  under  any  additional   license,   marketing,   distribution   and/or
development  agreements  with  third  parties;  and the  timing of and amount of
proceeds from the sale of additional  investment  securities.  The foregoing are
forward looking  statements and the factors  affecting its outcome are described
herein as well as in the first  paragraph of this  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations,  and in the Company's
other  filings with the SEC,  including  the 1996 annual report on Form 10-K, to
which the reader's attention is directed.

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

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



                                       18
<PAGE>

control the marketing and distribution efforts of SSI or Chiron Behring in their
respective territories and, therefore,  the Company's revenues for product sales
in those  territories  are dependent  upon the  effectiveness  of these parties'
sales, marketing and distribution efforts.

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

         The Company, therefore,  anticipates revenues during 1997 from the sale
of CERTIVA(TRADEMARK) in the United States to state governments and the CDC, and
to Abbott for resale to private  physicians and the managed care market.  If the
product is launched successfully in the United States by the Company and Abbott,
revenues from operations and the prospects for profitability would significantly
increase.  There can be no assurance that the FDA's approval will be obtained or
that,  once  obtained,  the Company and/or Abbott will be effective in marketing
and distributing the product.  The principal  factors  affecting the approval of
CERTIVA(TREADEMARK)  and its timing are  believed to be the  sufficiency  of the
clinical trials' design,  the quality of the clinical data submitted to the FDA,
and the adequacy of the systems, procedures,  operations and facilities relating
to the product,  among other things. The factors affecting successful commercial
launch  of  CERTIVA(TRADEMARK)  in the  United  States  include,  among  others:
successfully  participating  in established  purchasing  programs of Federal and
state  governments;  establishing an identity and reputation for the Company and
its  products;  creating  an  awareness  among  pediatricians  of the safety and
efficacy of the vaccine;  distinguishing  the Company's product from that of its
competitors;  establishing the Company as an effective and reliable  supplier of
vaccines;  production  of  sufficient  quantities  of vaccine  and  establishing
effective distribution channels.

         The  foregoing  paragraphs  contain only a partial  description  of the
factors  affecting the Company's  business  prospects and risk factors affecting
future  operations.  Reference  is made to the  Company's  filings with the SEC,
including the 1996 annual report on Form 10-K,  for a more complete  description
of the risks and uncertainties affecting the Company and its business.

         MARKETING,  RESEARCH & DEVELOPMENT  AGREEMENTS.  In December  1995, the
Company  signed a clinical  development  agreement  and license  agreement  with
Pasteur  Merieux-Connaught under which the parties agreed to jointly develop its
new  conjugate  vaccine  against  meningococcus  B infection for both adults and
pediatric  indications.  In 1996,  the Company  recognized  revenue from Pasteur
Merieux-Connaught  under this  collaboration.  Future fees and funding  would be
made upon achievement of development,  clinical and regulatory milestones. Total


                                       19
<PAGE>

remaining fees and payments to the Company upon  achievement of all clinical and
regulatory  milestones  amount  to  $45  million.  The  first  milestone  is the
satisfactory  completion  of a  pre-clinical  study.  In  addition,  the license
agreement must be ratified by the National  Research  Council of Canada ("NRC").
Successful  completion of the milestone and  ratification  of the license by the
NRC would trigger a payment from Pasteur Merieux-Connaught. The time it may take
to achieve  future  milestones  cannot be predicted  accurately and there are no
assurances  that any milestone will be met during 1997 or at all or that the NRC
will ratify the license agreement.  In addition,  Pasteur  Merieux-Connaught may
terminate these agreements in its sole discretion at any time.

         Under the marketing and distribution agreement with Abbott, the Company
will  receive  clinical   development   payments  and  milestone  payments  upon
achievement of prescribed  clinical and regulatory  events.  The first milestone
relates to FDA approval of CERTIVA(TRADEMARK)  provided certain other conditions
are  satisfied.  Total  remaining  payments by Abbott to the  Company  under the
agreement, inclusive of payments expected during 1997, amount to $26 million. In
addition,  the  Company  will  receive  revenues  from  Abbott  as it  purchases
CERTIVA(TRADEMARK)  and the  combination  vaccine  products  for  resale  to the
private  pediatric  market.  There are no assurances that the milestones will be
met, that the  quantities of Abbott's  purchases of  CERTIVA(TRADEMARK)  will be
significant  or as to the  timing of such  purchases,  or that  Abbott  will not
exercise  its right to  terminate  this  arrangement  at any time  with  advance
notice.

         During the remaining  quarters of 1997,  the Company  anticipates  that
total license fees,  clinical  development  funding and milestone payments under
its existing  marketing,  research  and  development  agreements  could be up to
approximately  $9 million  with no  assurance  that any further  amounts will be
received during 1997.  This is a forward looking  statement and the factors that
affect the timing of the license fee and milestone payments are in large measure
outside of the control of the  Company.  In the first half of 1997,  the Company
recognized  $1.2 million of revenue under  marketing,  research and  development
agreements.  The revenue  recognized  and to be  recognized  by the Company from
clinical  development payments received from Abbott are and will be equal to the
Company's    expenditures    in   the   clinical    development    program   for
CERTIVA(TRADEMARK)  and  the  combination  vaccines  up to a  specified  amount.
Accordingly,  such revenues are likely to fluctuate  from quarter to quarter and
would have no effect on net  operating  results.  The  factors  that  affect the
timing of these  expenditures,  and  therefore,  the  revenues to be  recognized
therefrom,  are  subject to  uncertainties  related to  clinical  trials and the
regulatory  approval  process.   There  are  no  assurances  that  the  clinical
development  funding from Abbott will be sufficient to fund all of the Company's
expenditures in the clinical development program for  CERTIVA(TRADEMARK) and the
combination vaccines.

         The  Company is  considering  the  advisability  of  executing  further
distribution  agreements for certain markets  throughout the world.  The Company
also intends to collaborate in the development of selected  vaccine products and
may enter into additional collaborative development agreements similar in nature

                                       20
<PAGE>

to that which was signed with Pasteur Merieux-Connaught,  as described above. In
addition,  the Company is in various  stages of  discussions  with third parties
regarding  various business  arrangements  including  licensing,  joint venture,
acquisition,  and  other  business  agreements,  some of which  possibly  may be
concluded  in the near  term.  There are no  assurances  that the  Company  will
successfully  negotiate and sign any such  agreements or that, if executed,  the
financial terms for any such agreement will be significant.

TAX AND OTHER MATTERS

         At December 31, 1996, the Company and its  subsidiaries  had income tax
loss  carryforwards  of  approximately  $9.9 million to offset  future  Canadian
source  income and  approximately  $55.5  million to offset future United States
taxable  income  subject  to the  alternative  minimum  tax rules in the  United
States.

         If more than a certain  percentage  of the  Company's  assets or income
becomes  passive,  the Company  will be  classified  for U.S.  tax purposes as a
passive foreign investment company ("PFIC"),  and a U.S. taxpayer may be subject
to an additional  Federal  income tax on receiving  certain  dividends  from the
Company  or  selling  the  Company's  Common  Stock.  The  Company  has not been
classified  as a PFIC to date,  and during  1997,  the  Company  intends to, and
believes that it can, generate sufficient other income to avoid being classified
as a PFIC.  This is a forward looking  statement and the factors  affecting this
classification  include,  among other  things,  the timing and amount of revenue
from product sales;  the timing and amount of license fees,  milestone  payments
and development funding under license,  marketing,  distribution and development
agreements; the classification of payments received  by the Company as active or
passive; and  the  classification  of the Company's assets as active or passive.

                                       21
<PAGE>


                           PART II. OTHER INFORMATION



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

The Company's 1997 Annual Meeting of Shareholders  was held on May 20, 1997. The
matters voted on and approved by the shareholders at the meeting,  together with
a tabulation of the respective votes, are as follows:

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

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

          Neil Flanzraich                     28,450,017            88,240
          Francesco Bellini                   28,450,041            88,216
          Phillip Frost                       28,450,041            88,216
          Alain Cousineau                     28,450,041            88,216
          Jonathan Deitcher                   28,263,918           274,339
          Denis Dionne                        28,450,041            88,216
          Rondi Grey                          28,450,041            88,216
          Lyle Kasprick                       28,450,041            88,216
          Francois Legault                    28,450,041            88,216
          Sharon Mates                        28,450,041            88,216
          Richard Pfenniger                   28,450,041            88,216

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

2.  APPOINTMENT  OF  ACCOUNTANTS.  Arthur  Andersen  LLP  was  duly appointed as
independent  public  accountants of the Company for the year ending  December
31, 1997, by the following vote:

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

Appointment of Arthur Andersen LLP          28,435,789        93,813     8,655
as independent public accountants
of the Company

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



                                       22
<PAGE>



                           PART II. OTHER INFORMATION



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    (a)      Exhibits

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

             27                Financial Data Schedule


    (b)      Reports on Form 8-K

             None.






                                       23
<PAGE>


                                   SIGNATURES


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


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


                                                   By:  /s/ Sharon Mates
                                                       ------------------------
                                                        Sharon Mates, Ph.D.
                                                        President


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











Date: July 30, 1997


                                       24