By Lisa Seachrist

Washington Editor

As part of its effort to build a vaccine business worth $1 billion by 2010, Baxter International Inc. is acquiring North American Vaccine Inc. in a mostly stock transaction worth approximately $390 million.

The agreement calls for Deerfield, Ill.-based Baxter to pay $7 per share for the 37 million outstanding shares of Columbia, Md.-based North American Vaccine (NAV). In addition, Baxter has extended a $30 million line of credit to NAV, $5 million of which has already been accepted.

"We were very impressed with the science and technology as well as the vaccine pipeline at North American Vaccine," said Mary Thomas, Baxter spokeswoman. "This acquisition demonstrates our commitment to the vaccine market and to our plan to grow our vaccine business to $1 billion in 2010."

Thomas noted the two companies fit quite well because Baxter has expertise in viral vaccines while NAV has technology to create vaccines against bacterial threats. NAV already has a vaccine on the market, Certiva - a combined diphtheria, tetanus and acellular pertussis vaccine designed to minimize side effects associated with whole-cell versions. NAV is expected to file for UK regulatory approval next month for its meningococcal C vaccine.

Under the terms of the agreement, Baxter will pay $7 per share to NAV's shareholders, consisting of $6.97 of Baxter stock and 3 cents in cash. The payment is a premium on NAV stock (AMX:NVX), which closed Wednesday at $5.812 a share. News of the deal sent NAV's stock up 37.5 cents Thursday to close at $6.187.

In addition, Baxter will assume approximately $133 million in acquisition-related debt. As a result, the transaction will be accounted for as a purchase.

BioChem Pharma Inc., of Laval, Quebec, has also agreed to these terms and will sell its entire stake in NAV - some 13.2 million shares of common stock. Michele Roy, spokeswoman for BioChem Pharma, said, "This is a very good deal for our shareholders. It will give them the most value for their investment."

The deal is contingent on several events, including certain regulatory approvals from the SEC, a tax ruling from Revenue Canada, and UK regulatory approval of the meningococcal C vaccine. The transaction is expected to be finalized in April 2000.

David Gruber, medical technologies analyst with Lehman Brothers in New York, called the deal a "win-win" situation for all parties involved.

"This was a good strategic move for Baxter, which wants to deliver eight new vaccine products in the next 10 years," Gruber said. "They get some near-term products as well as North American Vaccine's pipeline. North American Vaccine is a company that has invested heavily in R&D and Baxter will be the beneficiary of that investment."

North American Vaccine shareholders, in return, get a premium for their stock as well as a stake in Baxter.

Thomas agreed NAV will be contributing a great deal of science and technology to the deal, but noted in return Baxter can use its expertise in large-scale biologics manufacturing and clinical and regulatory expertise to move those technologies forward to produce new vaccine products.

NAV will become part of Baxter's vaccine operations Hyland Immuno division in Vienna, Austria. However, the company has no plans to move the Maryland facilities to Europe. Instead, Baxter intends to use NAV's facilities as its U.S. base of vaccine operations.

Baxter currently has a vaccine on the market in Europe for tick-borne encephalitis and is developing vaccines against influenza and Lyme disease as well as other viral and bacterial targets.