Barely more than a year ago, champagne flowed freely in the offices of a Columbia company called North American Vaccine Inc. After a herculean research effort lasting a decade, the scrappy biotechnology start-up had won government approval to sell its first product, a childhood vaccine, in the all-important U.S. market.

Nowadays, those champagne toasts have turned into a hangover.

Efforts to manufacture the vaccine, known by the trade name Certiva, have been nothing short of a disaster. Big drug companies that had agreed to market it are pulling out. North American Vaccine is bleeding cash and is down to a few weeks' worth of operating funds. The company's stock, which traded as high as $29.75 in 1997 on hopes for the vaccine, has collapsed to $5.93 3/4.

Earlier this year, Standard & Poor's placed the company on its "CreditWatch" list and downgraded its credit rating, citing "the company's continued operating losses and deteriorating financial profile." North American Vaccine's very survival seems to be at stake.

But wait: This tale could yet have a happy ending.

Misfortune in Britain has created a huge opportunity for North American Vaccine, one that could mean a $65 million shot in the arm beginning in the middle of next year--if only the company can survive that long. With the stock in the tank, some analysts perceive opportunity for investors. By this time next year, they figure, money could be flowing in.

North American Vaccine is a case study in the perils of drug development, one of the world's most lucrative--but riskiest--businesses. Since last year's vaccine approval, new management has taken charge and is struggling to put the company in order.

The new chief executive, Randal Chase, is a respected pharmaceutical veteran who has been wrestling with a daunting series of problems. Consider this one: The company spent millions bringing a high-tech drug to market without making sure it had an adequate system to supply sterile water needed in the manufacturing process.

Certiva is an improved version of the childhood vaccine against diphtheria, pertussis (whooping cough) and tetanus (lockjaw). Three competitors beat North American Vaccine to market with similar products. Even so, doctors and government vaccine programs seem willing to use it.

"We have been able to sell every dose," said Stephen Keith, the company's vice president of marketing and sales. "As soon as the product is available, it's out the door in days." But because of the water issue and other production problems, North American simply can't meet the demand.

No Certiva, no cash.

Chase started scrambling to fix the production problems when he came aboard last November. But earlier this year, a developing crisis in Britain prompted him to push in a new direction.

Meningitis, an infection of the fluid surrounding the brain and spinal cord, has reached serious levels in Britain. For that matter, cases are rising in the United States, but not to British rates. Meningitis often afflicts children and college students. A subtype called group C meningitis is striking about 1,500 Britons a year and killing 150 of them. Meningitis has become a leading cause of death among British babies.

Frank Dobson, Britain's secretary of state for health, said in a recent speech: "Meningitis fills parents with fear because it can arrive out of the blue and bring a healthy child to death's door in a few hours."

As it happens, North American Vaccine is in advanced stages of research on a new, improved vaccine for meningitis C. So are two other manufacturers, but in tests sponsored by Britain's National Health Service, North American's product looked superior.

Smelling opportunity, Chase launched a crash program in the spring to speed up the vaccine. "We realized this was . . . a strategic opportunity we had to seize," Chase said in an interview.

The effort paid off in July, when the British government announced it would launch a mass vaccination campaign against meningitis. Campaigns of this sort, similar to the one that conquered polio in the United States, are rare in Western countries these days, and they involve large sums. Britain's government said it would buy vaccine from all three manufacturers--including about 3 million doses, worth about $65 million, from North American Vaccine.

The vaccine still has to win approval from Britain's drug regulatory agency, but the need is so desperate and the research so strong that that appears to be a formality. If Chase hadn't launched his crash program in the nick of time, the company might have missed the chance entirely. "In hindsight, we wish we'd reacted two years ago," he said.

Two years ago, the company was run not by Chase but by a chief executive named Sharon Mates. The board booted her out last year as the company's problems were coming to a head. She later filed a lawsuit claiming she was fired because she discovered a sweetheart stock deal involving board members, but a court threw out her case. Chase, tapped specifically for his deep experience in making and selling vaccines, succeeded Mates.

North American Vaccine has deep-pocketed investors on its board, including two leading pharmaceutical executives, and they have consistently come through with enough cash to keep the company alive. Important backing has come from a Canadian company called Biochem Pharma Inc., which made its name and fortune by inventing Epivir, the world's best-selling AIDS drug.

Biochem guaranteed a $6 million line of credit that North American Vaccine is using to operate. But for a money-losing company saddled with high debt and burning at least $6 million in cash every three months, that is not a lot of money. The company is down to about $2 million in cash now, enough to last a few weeks.

"That's obviously, as we speak, one of the key issues that we face," Chase said. "It's a little tighter than I'd like, to be candid."

The board is investigating various options, which may include a buyout by Biochem Pharma or another big company, or another round of interim financing.

Bankruptcy is a theoretical possibility, but the going bet among analysts is that Biochem Pharma and the company's other investors won't let it go under. In their view, Chase's British coup demonstrates that the company has a future. It has numerous other potentially important vaccines under development, though most of them will take years to reach the market.

Vandana K. Bapna, analyst with Offutt Securities in Hunt Valley, Md., recently raised her rating on North American's stock to "strong buy," based largely on the British campaign. She doesn't think Biochem and other investors will let the company run out of cash. "They would not want to just back off," she said.

For the moment, Chase has suspended production of Certiva to concentrate on making enough meningitis vaccine for the British market. Eventually the company will seek approval for the meningitis vaccine in the United States, too. And it has even better meningitis vaccines, covering more types of germs, under development.

Chase promises to resume Certiva production as soon as practical in an effort to turn that into a profitable product. Analysts credit him with bringing an intensified focus and discipline to the company's efforts. He said in an interview that he did not wish to dwell on the company's past mistakes.

"I tend to look at today and tomorrow," he said. "What are we going to do to make this company successful?"

LOOKING TO BRITAIN

North American Vaccine of Columbia has struggled to manufacture its vaccine Certiva but is hoping potential sales of a different vaccine in Britain will improve its financial performance.

Daily closing stock prices

Oct. 10, 1997: Stock hits $29.75 amid hopes for Certiva.

July 30, 1998: Certiva gets FDA approval but is the fourth product of its type to market; skeptical traders drive down price.

July 8, 1999: Credit rating is downgraded as company's financial situation deteriorates.

Yesterday's close: $5.93 3/4, down 6 1/4 cents

SOURCE: Bloomberg News