UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 Commission File No. 0-17082
 QLT Inc.
  British Columbia, Canada
(State or Other Jurisdiction of Incorporation or Organization)
    
    N/A
(I.R.S. Employer Identification No.)101  887 Great Northern Way, Vancouver, B.C., Canada
(Address of principal executive offices)
    
    V5T 4T5
(Zip Code)
   Title of each class
    
    Name of each exchange on which registeredCommon Shares, without par value
    
    Nasdaq Stock MarketCommon Share Purchase Rights
    
    Toronto Stock Exchange
  
 o þ
 o þ
 þ o
 o
 Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o
 o þ




---



##### 



Note regarding references to QLT
  Note regarding Currency and Accounting Standards
   Note regarding Exchange Rates
  2008
    
    2007
    
    2006
    
    2005
    
    2004High
    
    $
    1.2971
    
    
    $
    1.1852
    
    
    $
    1.1726
    
    
    $
    1.2703
    
    
    $
    1.3970Low
    
    
    0.9717
    
    
    
    0.9168
    
    
    
    1.0989
    
    
    
    1.1507
    
    
    
    1.1775Average
    
    
    1.0660
    
    
    
    1.0734
    
    
    
    1.1340
    
    
    
    1.2115
    
    
    
    1.3017Period End
    
    
    1.2240
    
    
    
    0.9881
    
    
    
    1.1652
    
    
    
    1.1656
    
    
    
    1.2034
 NOTICE REGARDING WEBSITE ACCESS TO COMPANY REPORTS
  2




---



##### 



QLT INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2008
 Table of Contents
 Item 1. BUSINESS
    
    
    5Overview
    
    
    5Our Approved Products
    
    
    9Our Products under Regulatory Review
    
    
    11Our Products in Development
    
    
    11Our Proprietary Technologies
    
    
    12Significant Collaborative Arrangements
    
    
    13Product Manufacturing
    
    
    15Financial Information about Segments and Geographic Areas
    
    
    15Supply of Medical Lasers Required for Visudyne Therapy
    
    
    15Patents, Trademarks and Proprietary Rights
    
    
    16Competition
    
    
    18Government Regulation
    
    
    19Third-Party Reimbursement
    
    
    21Liability and Product Recall
    
    
    21Research and Development
    
    
    22Human Resources
    
    
    22Item 1A. RISK FACTORS
    
    
    23Item 1B. UNRESOLVED STAFF COMMENTS
    
    
    36Item 2. PROPERTIES
    
    
    36Item 3. LEGAL PROCEEDINGS
    
    
    37Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    39Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
    
    
    40Item 6. SELECTED FINANCIAL DATA
    
    
    43Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    46Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    74Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    74Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
    
    
    112Item 9A. CONTROLS AND PROCEDURES
    
    
    112Item 9B. OTHER INFORMATION
    
    
    114
 3




---



##### 



Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    115Item 11. EXECUTIVE COMPENSATION
    
    
    115Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
    
    
    115Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    116Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    116Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    117
  4




---



##### 



PART I
 
 Item 1. BUSINESS
 
 Overview
  ® ® ®
    Strategic Corporate Restructuring
  
    
    On January 18, 2008, we implemented a reduction in head count that affected 115 people
(or approximately 45% of our workforce) at our Vancouver headquarters and our U.S.
subsidiaries, including several members of senior management.
    
    On July 11, 2008, we completed the sale of assets related to Aczone® to
Allergan Sales, LLC, or Allergan, for cash consideration of $150.0 million.
    
    On August 25, 2008, we entered into an exclusive license agreement with Reckitt
Benckiser Pharmaceuticals Inc., or Reckitt, for the Atrigel sustained-release drug
delivery technology, except for certain rights being retained by us and our prior
licensees, including rights retained for use with our Eligard products. Under the terms of
the license agreement and related asset purchase agreement, we received an aggregate
upfront payment of $25.0 million and may receive potential milestone payments up to an
aggregate of $5.0 million based on the successful development of two Atrigel-formulated
products. As part
 5




---



##### 



of the transaction, Reckitt hired 18 employees from QLT USA and took
over most of QLT USAs leased corporate facility in Fort Collins, Colorado.
    
    On August 29, 2008, we completed the sale of our land and building comprising our
corporate headquarters and the adjacent undeveloped parcel of land in Vancouver to
Discovery Parks Holdings Ltd., in its capacity as trustee of Discovery Parks Trust and
Discovery Parks Trust 2, or Discovery Parks, for CAD$65.5 million. In conjunction with the
sale, we entered into a five-year lease with Discovery Parks for approximately 30% of the
facility and provided a two-year, 6.5% interest-only, second mortgage vendor financing in
the amount of CAD$12.0 million.
  Recent Securities Transactions
   6




---



##### 



OUR APPROVED PRODUCTS
 Product/Indication
    
    Location(s)
    
    Licensee(s)VisudynePredominantly classic subfoveal CNV in wet AMD
    
    Over 80 countries including
the U.S., Canada, Japan,
Australia, New Zealand and
those of the EU
    
    NovartisOccult with no classic subfoveal CNV in AMD
    
    Over 29 countries including
Japan, Australia, New
Zealand and Switzerland
    
    NovartisMinimally Classic CNV in AMD
    
    Japan
    
    NovartisSubfoveal CNV due to pathologic myopia
    
    Over 40 countries including
the U.S., Canada, and
those of the EU
    
    NovartisPredominantly classic subfoveal CNV due to
presumed ocular histoplasmosis syndrome
    
    U.S., Canada and Korea
    
    NovartisEligard 7.5-mg one-monthProstate cancer
    
    Approved in 45 countries and marketed
in over 30 countries, including the
U.S., Canada, Australia, New Zealand,
20 EU member states (27 European
countries) India, Korea and 11 Latin
American countries
    
    Sanofi-aventis, Hospira,
MediGene/Astellas, Ranbaxy,
HanAll, Tecnofarma,
Luxembourg PharmaEligard 22.5-mg three-monthProstate cancer
    
    Approved in 39 countries and marketed
in over 30 countries, including the
U.S., Canada, Australia, New Zealand,
20 EU member states (27 European
countries), India, and 6 Latin American
countries
    
    Sanofi-aventis Hospira,
MediGene/Astellas, Ranbaxy,
HanAll, TecnofarmaEligard 30.0-mg four-monthProstate cancer
    
    Approved in the U.S., Canada,
Australia, New Zealand, India, Korea
and 2 Latin America countries
    
    Sanofi-aventis, Hospira,
Ranbaxy, HanAll
 7




---



##### 



Product/Indication
    
    Location(s)
    
    Licensee(s)Eligard 45.0-mg six-monthProstate cancer
    
    Approved in the U.S., Canada,
Australia, New Zealand, 20 EU member
states (27 European countries), India
and Korea
    
    Sanofi-aventis, Hospira,
MediGene/Astellas, Ranbaxy,
HanAll, Key Oncologics
 8




---



##### 



OUR PRODUCTS IN DEVELOPMENT
 Product/Indication
    
    Location(s)
    
    StatusPunctal Plug (latanoprost)Glaucoma and Ocular Hypertension
    
    U.S.
    
    Phase II studies ongoingthrough 2009.VisudyneWet AMD
    
    U.S., Canada
    
    Phase II study ofVisudyne followed by ananti-VEGF drug (with orwithout dexamethasone)either as a bi-therapy ortriple therapy. Plans to completePhase II studies in 2010.QLT091001Lebers Congenital Amaurosis (LCA)
    
    Canada
    
    Plans to complete PhaseIa study and commencePhase Ib study in 2009.
 
 Our Approved Products
 Visudyne
  About Wet AMD
   Visudyne Approvals
 Predominantly Classic CNV in AMD
  9




---



##### 



Occult with no Classic CNV in AMD
  CNV due to Pathologic Myopia (PM)
  CNV due to Presumed Ocular Histoplasmosis Syndrome (OHS)
  Eligard
    Eligard 7.5-mg One-Month and 22.5-mg Three-Month Products
  Eligard 30.0-mg Four-Month Product
  Eligard 45.0-mg Six-Month Product
  10




---



##### 



Our Products under Regulatory Review
 Eligard 7.5-mg One-Month Product
  Eligard 22.5-mg Three-Month Product
  Eligard 30.0-mg Four-Month Product
  Eligard 45.0-mg Six-Month Product
  
 Our Products in Development
 About Glaucoma
  Punctal Plug Drug Delivery System
   11




---



##### 



Expansion of Visudyne Therapy
    ®
 QLT091001
  
 Our Proprietary Technologies
 Punctal Plug Drug Delivery System
  12




---



##### 



Photodynamic Therapy
   Atrigel System for Injectable Sustained Release Drug Delivery
    
 Significant Collaborative Arrangements
 Novartis  PDT Product Development, Manufacturing and Distribution Agreement for Visudyne Worldwide
   13




---



##### 



Sanofi-aventis  Marketing of Eligard in the U.S. and Canada
    MediGene AG and Astellas  Marketing of Eligard in Europe
    Other Eligard Marketing Collaborations
  14




---



##### 



OTHER ELIGARD MARKETING COLLABORATIONS
 Company
    
    TerritoryHanAll Pharmaceutical Co.
    
    KoreaHospira Australia Pty Ltd.
    
    Australia, New ZealandKey Oncologics
    
    South AfricaLuxembourg Pharmaceuticals, Ltd.
    
    IsraelRanbaxy Laboratories Ltd.
    
    IndiaTecnofarma International Ltd.
    
    Argentina, Belize, Bolivia,
Brazil, Chile, Colombia, Costa
Rica, Dominican Republic,
Ecuador, El Salvador, French
Guiana, Guatemala, Guyana,
Honduras, Mexico, Nicaragua,
Panama, Paraguay, Peru,
Suriname, Uruguay, and
Venezuela.
 
 Product Manufacturing
   
 Financial Information about Segments and Geographic Areas
  
 Supply of Medical Lasers Required for Visudyne Therapy
  15




---



##### 



Patents, Trademarks and Proprietary Rights
   Visudyne
  .
    16




---



##### 



Atrigel
    Eligard
  Punctal Plug Drug Delivery System
  QLT091001
  Other Patents, Trademarks and Proprietary Rights
    17




---



##### 



Competition
  Visudyne
   Eligard
  18




---



##### 



Government Regulation
  FDA Regulation  Approval of New Drug Products
  
    
    preclinical testing;
    
    submission of an investigational new drug application, or IND, to the FDA, which must
become effective before human clinical trials may commence;
    
    adequate and well-controlled human clinical trials to establish the safety and efficacy
of the drug;
    
    validation and approval the manufacturing facilities and process;
    
    submission of a new drug application, or NDA, or abbreviated new drug application, or
ANDA, to the FDA; and
    
    FDA approval of the application, including approval of all labelling.
   
    
    assess the efficacy of the drug in specific, targeted indications;
    
    assess dosage tolerance and optimal dosage; and
    
    identify possible adverse effects and safety risks.
   19




---



##### 



FDA Regulation  Approval of Medical Devices
   FDA Regulation  Post-approval Requirements
   EU Regulation  Approval of Medicinal Product
  20




---



##### 



Additional Regulatory Issues
   
 Third-Party Reimbursement
   
 Liability and Product Recall
   21




---



##### 



Research and Development
  
 Human Resources
  22




---



##### 



Item 1A. RISK FACTORS
  We derive a significant portion of our revenue from sales of Visudyne and Eligard. If our planned
sale of QLT USA and/or the Eligard product line is completed, Visudyne will be our primary source
of revenue. Accordingly, any decrease in sales of Visudyne would harm our business.
  
    
    failure of ongoing clinical trials,
    
    product manufacturing or supply interruptions,
    
    the development of competitive products by other companies,
    
    marketing or pricing actions by our competitors or regulatory authorities,
    
    changes in the reimbursement or substitution policies of third-party payers,
    
    changes in or withdrawal of regulatory approval for or the labeling of our products,
    
    the outcome of disputes relating to patents,
    
    disputes with our licensees, and
    
    changes in laws that adversely affect our ability to market our products.
 Our commercial success depends in part on the success of third parties to market our products.
   23




---



##### 



Our revenues depend on payment and reimbursement from third party payers and pricing, and if third
party payers reduce or refuse payment, or reimbursement or if prices are reduced, the use and sales
of our products will suffer, we may not increase our market share, and our revenues and
profitability will suffer.
    If our supply of Visudyne or Eligard is interrupted, our ability to maintain our inventory levels
could suffer and our future revenues may be reduced.
  24




---



##### 



Our success depends largely on the successful commercialization of our technology, and in
particular our drug/device combination punctal plug drug delivery technology.
  
    
    Future clinical trial results may show that some or all of our technology is not safe or
effective.
    
    Even if our technology is shown to be safe and effective, we and our strategic
collaborators may face significant or unforeseen difficulties in manufacturing our products.
These difficulties may become apparent when we or our strategic collaborators manufacture the
products on a small scale for clinical trials and regulatory approval or may only become
apparent when scaling-up the manufacturing to commercial scale.
    
    Even if our technology-based products are successfully developed, receive all necessary
regulatory approvals and are commercially produced, there is no guarantee that there will be
market acceptance of them or that they will not cause unanticipated side effects in patients.
   If our process related to product development, and in particular the development of our punctal
plug delivery technology, does not result in an approved and commercially successful product, our
business could be adversely affected.
   25




---



##### 



Our current and planned clinical trials may not begin on time, or at all, and may not be completed
on schedule, or at all.
  
    
    the FDA or other regulatory authorities do not approve a clinical trial protocol or a
clinical trial, or place a clinical trial on hold;
    
    the data and safety monitoring committee of a clinical trial recommends that a trial be
placed on hold or suspended;
    
    patients do not enroll in clinical trials at the rate we expect;
    
    patients are not followed-up at the rate we expect;
    
    patients experience adverse side effects or events related to our products;
    
    patients die or suffer adverse medical effects during a clinical trial for a variety of
reasons, including the advanced stage of their disease or medical problems, which may or may
not be related to our product candidates;
    
    regulatory inspections of our clinical trials or manufacturing facilities, which may,
among other things, require us to undertake corrective action or suspend or terminate our
clinical trials if investigators find us not to be in compliance with regulatory
requirements;
    
    the failure of our manufacturing process to produce finished products which conform to
design and performance specifications;
    
    changes in governmental regulations or administrative actions;
    
    the interim results of clinical trials are inconclusive or negative;
    
    pre-clinical or clinical data is interpreted by third parties in different ways;
    
    our clinical trial expenditures are constrained by our budgetary considerations; or
    
    our trial design, although approved, is inadequate for demonstration of safety and/or
efficacy.
   Product development is a long, expensive and uncertain process, and we may terminate one or more of
our development programs.
  We are currently, and in the future may be, involved in legal proceedings and if there is an
adverse outcome in our litigation or other legal actions, our business may be harmed.
  26




---



##### 



We may not be able to negotiate the disposition of defined assets, including QLT USA or its assets
including Eligard, on terms acceptable to us or at all, and our Board of Directors may determine
during and as a result of the process that we should not continue with the present strategy.
  Even if we are able to negotiate and enter into definitive agreements for the disposition of
defined assets, including QLT USA or its assets including Eligard, we may not be able to consummate
the transactions contemplated by the definitive agreements.
  27




---



##### 



We continue to pursue the disposition of QLT USA or its assets, including Eligard. This pursuit
may divert the attention of our management and employees, disrupt our operations and increase our
professional services expenses.
  We have undertaken significant strategic and organizational changes. Failure to manage disruption
to our business or the loss of key personnel could have a material adverse effect on our business.
   We face intense competition, which may limit our commercial opportunities and our ability to
generate revenues.
   28




---



##### 



If we do not achieve and sustain profitability, shareholders may lose their investment.
  If we do not successfully develop and launch replacements for our products that lose patent
protection, our revenues may decline and we may not be able to compete effectively.
  Our commercial success depends in part on our ability and the ability of our licensors to obtain
and maintain patent protection on technologies, to preserve trade secrets, and to operate without
infringing the proprietary rights of others.
     29




---



##### 



The incidence of wet AMD might be reduced if therapies currently in development or currently
available prevent or reduce the risk of development of wet AMD which could adversely impact the
sales of Visudyne.
  We rely on third-party manufacturers, and difficulties with such third parties could delay future
revenues from our products sales.
   If our contract manufacturers fail to comply with FDA and other foreign regulatory requirements or
with our product specifications, we may be unable to meet demand for our products and may lose
potential revenue and be subject to claims from our licensees.
    30




---



##### 



In the field of Photodynamic Therapy, or PDT, we are dependent on the success and continued supply
of third-party medical device companies with complementary light source and light delivery devices
by third party suppliers.
   Inherent uncertainties associated with forecasting product demand and future product launch and
other factors could result in our inventory becoming obsolete or reduced, possibly materially, in
market value.
  If the facilities storing our inventory are damaged or destroyed, our ability to meet market demand
for our products could be significantly affected.
  The future growth of our business may depend in part on our ability to successfully identify,
acquire on favorable terms, and assimilate technologies, products or businesses.
  
    
    difficulties in and costs associated with assimilating the operations, technologies,
personnel and products of an acquired business,
 31




---



##### 




    
    assumption of known or unknown liabilities or other unanticipated events or
circumstances,
    
    the potential disruption to our ongoing business, and
    
    the potential negative impact on our earnings.
  We rely on our employees and consultants to keep our trade secrets confidential.
  Visudyne, Eligard or our other products may exhibit adverse side effects that prevent their
widespread use or that necessitate withdrawal from the market.
  If we fail to comply with ongoing regulatory requirements, it will materially harm our business.
    32




---



##### 



Our use of hazardous materials exposes us to the risk of environmental liabilities, and we may
incur substantial additional costs to comply with environmental laws.
  Our provision for income taxes and effective income tax rate may vary significantly and may
adversely affect our results of operations and cash resources.
  33




---



##### 



We may need additional capital in the future, and our prospects for obtaining it are uncertain
  Our operating results may fluctuate, which may cause our financial results to be below expectations
and the market price of our securities to decline.
  
    
    lower than expected revenues from sales of Visudyne or Eligard,
    
    changes in pricing, pricing strategies or reimbursement levels for Visudyne or Eligard,
    
    seasonal fluctuations, particularly in the third quarter due to decreased demand for
Visudyne in the summer months,
    
    high levels of marketing expenses for Visudyne or the launch of additional competitors
to Visudyne or Eligard,
    
    fluctuations in currency exchange rates,
    
    unfavorable outcome of the German Eligard patent litigation commenced against QLT USAs
German licensees by Takeda Chemical Industries Ltd. and Takeda Pharma GmbH,
    
    unfavorable outcome in the litigation commenced by MEEI against us,
    
    unfavourable outcome in the litigation commenced by MGH against us,
    
    higher than expected operating expenses as a result of increased costs associated with
the development or commercialization of Visudyne, Eligard, and our other products and
candidates,
    
    increased operating expenses as a result of product, technology or other acquisitions or
business combinations, and
    
    divestment of Eligard and other revenue producing assets.
 34




---



##### 



The
market price of our common shares is extremely volatile and the value
of an investment in our common shares could
decline.
  
    
    announcements of technological innovations or new products by us or our competitors,
    
    developments or outcome of litigation, including litigation regarding proprietary and
patent rights,
    
    regulatory developments or delays concerning our products,
    
    quarterly variations in our financial results,
    
    business and product market cycles,
    
    fluctuations in customer requirements,
    
    the availability and utilization of manufacturing capacity and our ability to continue
to supply Visudyne, Eligard and our other products,
    
    the timing and amounts of royalties paid to us by third parties, and
    
    issues with the safety or effectiveness of our products.
  We were a passive foreign investment company for the taxable year ended December 31, 2008, which
could result in adverse United States federal income tax consequences to U.S. Holders.
  35




---



##### 



If we fail to manage our exposure to global financial and securities market risk successfully, our
operating results and financial statements could be materially impacted.
  The recent financial crisis and current uncertainty in global economic conditions could negatively
affect our business, results of operations and financial condition.
  Various provisions of our charter may impede a change in control that is beneficial to our
shareholders.
   
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
    36




---



##### 



Item 3. LEGAL PROCEEDINGS
   (a) Eligard Patent Litigation
       (b) Patent Litigation with MEEI; Litigation with MGH
  37




---



##### 



38




---



##### 



Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  39




---



##### 



PART II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Common Share Information
  The Toronto Stock Exchange
    
    The NASDAQ Stock MarketHigh
    
    Low
    
    High
    
    Low(CAD$)
    
    (CAD$)
    
    (U.S.$)
    
    (U.S.$)2008Fourth Quarter
    
    $
    3.54
    
    
    $
    2.20
    
    
    $
    3.30
    
    
    $
    1.80Third Quarter
    
    
    4.39
    
    
    
    3.30
    
    
    
    4.08
    
    
    
    3.25Second Quarter
    
    
    4.03
    
    
    
    3.44
    
    
    
    3.95
    
    
    
    3.43First Quarter
    
    
    4.85
    
    
    
    2.32
    
    
    
    4.59
    
    
    
    2.452007Fourth Quarter
    
    $
    5.77
    
    
    $
    3.46
    
    
    $
    5.73
    
    
    $
    3.51Third Quarter
    
    
    7.89
    
    
    
    5.58
    
    
    
    7.49
    
    
    
    5.41Second Quarter
    
    
    9.15
    
    
    
    7.35
    
    
    
    8.05
    
    
    
    6.64First Quarter
    
    
    11.50
    
    
    
    8.98
    
    
    
    9.92
    
    
    
    7.78
   40




---



##### 



Share Price Performance Graph
  
 Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 30,
    
    
    Dec. 29,
    
    
    Dec. 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008QLT Total Return
    
    
    100.00
    
    
    
    78.49
    
    
    
    30.49
    
    
    
    40.29
    
    
    
    17.88
    
    
    
    11.92S&P/TSX Composite Index
    
    
    100.00
    
    
    
    112.48
    
    
    
    137.12
    
    
    
    157.02
    
    
    
    168.27
    
    
    
    109.33NASDAQ Biotechnology Index
    
    
    100.00
    
    
    
    98.39
    
    
    
    97.90
    
    
    
    99.10
    
    
    
    88.16
    
    
    
    94.65
   Dividend Policy
  Equity Plans
  41




---



##### 



Recent Sales of Unregistered Securities
  Issuer Purchases of Equity Securities
  Exchange Controls and Other Limitations Affecting Holders of Common Shares
    (a)
    
    acquisition of common shares by a person in the ordinary course of that persons
business as a trader or dealer in securities;(b)
    
    acquisition of control of the Company in connection with the realization of security
granted for a loan or other financial assistance and not for any purpose related to the
provisions of the Investment Act; and(c)
    
    acquisition of control of the Company by reason of an amalgamation, merger,
consolidation or corporate reorganization following which the ultimate direct or indirect
control in fact of the Company, through the ownership of voting interests, remains
unchanged.
  Budget Implementation Act, 2009
 42




---



##### 



Item 6. SELECTED FINANCIAL DATA
 Annual Financial Data
  2008(7)(8)(9)Year Ended December 31,
    
    (10)
    
    2007(4)(5)(6)
    
    2006(4)
    
    2005(3)
    
    2004(1)(2)(In thousands of U.S. dollars except per share information)CONSOLIDATED STATEMENT OF OPERATIONS DATATotal revenues
    
    $
    124,140
    
    
    $
    127,606
    
    
    $
    174,136
    
    
    $
    225,448
    
    
    $
    184,360Research and development expenses
    
    
    29,568
    
    
    
    38,586
    
    
    
    40,958
    
    
    
    47,307
    
    
    
    47,867Income (loss) from continuing operations
    
    
    14,952
    
    
    
    (103,326
    )
    
    
    (73,058
    )
    
    
    (305,017
    )
    
    
    (84,951
    )Income (loss) before extraordinary gain
    
    
    134,891
    
    
    
    (109,997
    )
    
    
    (101,605
    )
    
    
    (325,412
    )
    
    
    (178,226
    )Net income (loss)
    
    
    134,891
    
    
    
    (109,997
    )
    
    
    (101,605
    )
    
    
    (325,412
    )
    
    
    (165,709
    )Basic net income (loss) per common share:Continuing operations
    
    
    0.20
    
    
    
    (1.38
    )
    
    
    (0.86
    )
    
    
    (3.29
    )
    
    
    (1.16
    )Discontinued operations
    
    
    1.61
    
    
    
    (0.09
    )
    
    
    (0.34
    )
    
    
    (0.22
    )
    
    
    (1.27
    )Extraordinary gain(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17Net income (loss)
    
    
    1.81
    
    
    
    (1.47
    )
    
    
    (1.20
    )
    
    
    (3.51
    )
    
    
    (2.26
    )Diluted net income (loss) per common
share:Continuing operations
    
    
    0.20
    
    
    
    (1.38
    )
    
    
    (0.86
    )
    
    
    (3.29
    )
    
    
    (1.16
    )Discontinued operations
    
    
    1.61
    
    
    
    (0.09
    )
    
    
    (0.34
    )
    
    
    (0.22
    )
    
    
    (1.27
    )Extraordinary gain(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17Net income (loss)
    
    
    1.81
    
    
    
    (1.47
    )
    
    
    (1.20
    )
    
    
    (3.51
    )
    
    
    (2.26
    )CONSOLIDATED BALANCE SHEET DATACash, cash equivalents and short-term
investment securities
    
    $
    165,395
    
    
    $
    126,731
    
    
    $
    374,216
    
    
    $
    465,615
    
    
    $
    379,852Working capital
    
    
    259,554
    
    
    
    49,582
    
    
    
    323,028
    
    
    
    514,713
    
    
    
    467,815Total assets
    
    
    491,758
    
    
    
    548,987
    
    
    
    639,106
    
    
    
    776,494
    
    
    
    1,111,312Convertible debt
    
    
    
    
    
    
    172,500
    
    
    
    172,500
    
    
    
    172,500
    
    
    
    172,500Total shareholders equity
    
    
    343,230
    
    
    
    219,823
    
    
    
    303,214
    
    
    
    526,111
    
    
    
    856,779
 43




---



##### 



Quarterly Financial Data (11)
   September 30Three Months Ended
    
    December 31
    
    (7)(8)(9)(10)
    
    June 30
    
    March 31(In thousands of U.S. dollars except per share information)2008Total revenues
    
    
    39,010
    
    
    
    27,816
    
    
    
    30,621
    
    
    
    26,694Gross profit
    
    
    23,787
    
    
    
    16,956
    
    
    
    17,692
    
    
    
    16,030Research and development expenses
    
    
    6,519
    
    
    
    6,887
    
    
    
    8,114
    
    
    
    8,048Net income (loss) from continuing
operations
    
    
    5,916
    
    
    
    20,806
    
    
    
    (2,735
    )
    
    
    (9,034
    )Net income (loss)
    
    
    5,874
    
    
    
    146,926
    
    
    
    (7,438
    )
    
    
    (10,471
    )Basic net income (loss) per common shareContinuing operations
    
    
    0.08
    
    
    
    0.28
    
    
    
    (0.04
    )
    
    
    (0.12
    )Discontinued operations
    
    
    (0.00
    )
    
    
    1.69
    
    
    
    (0.06
    )
    
    
    (0.02
    )Net income (loss)
    
    
    0.08
    
    
    
    1.97
    
    
    
    (0.10
    )
    
    
    (0.14
    )Diluted net income (loss) per common shareContinuing operations
    
    
    0.08
    
    
    
    0.27
    
    
    
    (0.04
    )
    
    
    (0.12
    )Discontinued operations
    
    
    (0.00
    )
    
    
    1.52
    
    
    
    (0.06
    )
    
    
    (0.02
    )Net income (loss)
    
    
    0.08
    
    
    
    1.80
    
    
    
    (0.10
    )
    
    
    (0.14
    )2007(4) (5) (6)Total revenues
    
    $
    30,885
    
    
    $
    28,658
    
    
    $
    35,608
    
    
    $
    32,455Gross profit
    
    
    16,362
    
    
    
    18,746
    
    
    
    23,366
    
    
    
    23,736Research and development expenses
    
    
    11,976
    
    
    
    9,233
    
    
    
    8,832
    
    
    
    8,546Net (loss) income from continuing
operations
    
    
    (45,027
    )
    
    
    2,071
    
    
    
    (66,860
    )
    
    
    6,490Net (loss) income
    
    
    (46,547
    )
    
    
    351
    
    
    
    (68,667
    )
    
    
    4,865Basic net (loss) income per common shareContinuing operations
    
    
    (0.60
    )
    
    
    0.03
    
    
    
    (0.89
    )
    
    
    0.09Discontinued operations
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.02
    )Net (loss) income
    
    
    (0.62
    )
    
    
    0.00
    
    
    
    (0.92
    )
    
    
    0.06Diluted net (loss) income per common
shareContinuing operations
    
    
    (0.60
    )
    
    
    0.03
    
    
    
    (0.89
    )
    
    
    0.09Discontinued operations
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.02
    )Net (loss) income
    
    
    (0.62
    )
    
    
    0.00
    
    
    
    (0.92
    )
    
    
    0.06
 (1)
    
    On November 19, 2004, we completed our acquisition of Atrix Laboratories, Inc. (now QLT USA)
for $870 million. The impact of this acquisition on 2004 operations included: total revenues of
$5.0 million, a $236.0 million charge for purchased in-process research and development, and
amortization of acquired intangibles of $0.9 million.(2)
    
    On March 31, 2004, we acquired all the outstanding shares of Kinetek Pharmaceuticals, Inc., a
privately held biopharmaceutical company based in Vancouver, British Columbia that focused on
discovery and development of new targets and therapies, for $2.4 million. The extraordinary gain
in fiscal 2004 of $12.5 million resulting from this acquisition related to the estimated fair value
of net assets acquired, including the recognition of certain tax assets, in excess of the total
consideration paid by us.(3)
    
    During the fourth quarter of 2005, events and circumstances indicated impairment of goodwill
and intangible assets acquired in connection with our acquisition of QLT USA in November 2004. As
a result, we recorded a non- 44




---



##### 



(4)
    
    On February 9, 2007, QLT USA and Sanofi-aventis entered into a Settlement, Release and Patent
License to settle the TAP Litigation, and without admitting liability, QLT USA paid $112.5 million
and Sanofi-aventis paid $45.0 million, for an aggregate settlement amount of $157.5 million. As a
result of this settlement, we recorded a charge of $112.5 million in our results for 2006.(5)
    
    In July 2007, the District Court entered judgment in the lawsuit brought against us by MEEI in
connection with U.S. patent no. 5,789,349. The District Court found that we were liable under
Massachusetts state law for unfair trade practices, but that such violation was not knowing or
willful, and determined that we should pay MEEI 3.01% of past, present and future worldwide Visudyne net sales, plus interest and legal fees. As a result, we recorded a charge of $110.2
million in our results for 2007.(6)
    
    On October 18, 2007, we completed the acquisition of ForSight Newco II, Inc. (now QPD) for
aggregate consideration of $42.3 million. The acquired in-process R&D charge of $42.9 million
relates to the proprietary ocular punctal plug drug delivery system in development.(7)
    
    Assets related to Aczone were sold by QLT USA to Allergan in July 2008 for cash consideration
of $150.0 million, pursuant to the terms of a purchase agreement executed on June 6, 2008. We
recognized a pre-tax gain of $118.2 million related to this transaction within discontinued
operations for 2008.(8)
    
    On August 25, 2008 QLT USA entered into an exclusive license agreement with Reckitt for our
Atrigel sustained-release drug delivery technology, except for certain rights being retained by us
and our prior licensees, including rights retained for use with our Eligard products. We
recognized a pre-tax gain of $16.7 million related to this transaction within discontinued
operations for 2008.(9)
    
    On August 29, 2008, we completed the sale of our land and building comprising our corporate
headquarters and the adjacent undeveloped parcel of land in Vancouver to Discovery Parks for
CAD$65.5 million. We recognized a pre-tax gain of $21.7 million related to this transaction in our
results for 2008.(10)
    
    As a result of an evaluation of QLT USAs prior earnings history, expected future earnings,
and gains recorded on the divestiture of Aczone and out-licensing of Atrigel, we concluded that a
valuation allowance was no longer required on substantially all of QLT USAs tax assets. We
recognized a reduction of our valuation allowance of $54.7 million within discontinued operations
and $4.8 million within continuing operations in the third quarter of 2008.(11)
    
    The basic and diluted income (loss) per share are determined separately for each
quarter. Consequently, the sum of the quarterly amounts may differ from the annual amounts
disclosed in the consolidated financial statements as a result of using different weighted average
numbers of shares outstanding. 45




---



##### 



Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    anticipated levels of future sales of our products;
    
    Novartis ongoing commitment to Visudyne;
    
    our continued ability to supply our products to our customers;
    
    our expectations regarding Visudyne label changes, reimbursement and sales;
    
    our ability to successfully develop our latanoprost punctal plug delivery system
(L-PPDS);
    
    anticipated future operating results;
    
    our expectations as to the outcome of the MEEI and MGH litigation against us and the
effect of an adverse judgment on the MGH litigation brought against us;
    
    our expectations as to the outcome of the German Eligard patent litigation commenced
against QLT USA, Inc.s German licensees by Takeda Chemical Industries Ltd. and Takeda
Pharma GmbH;
    
    our dependency on contract manufacturers and suppliers to manufacture our products at
competitive prices and in accordance with FDA and other local and foreign regulatory
requirements as well as our product specifications;
    
    our ability to execute our strategic corporate restructuring;
    
    our expectations regarding future tax liability as a result of changes in estimates of
prior years tax items and results of tax audits by tax authorities;
    
    our expectations regarding our timing and ability to sell assets (specifically Eligard
and related assets) at prices acceptable to us or at all;
    
    our expectations regarding the amount of annual operating savings we could derive as a
result of our corporate restructure;
    
    the anticipated timing, cost and progress of the development of our technology
(including our punctal plug delivery system and our synthetic retinoid technology) and
clinical trials;
    
    the anticipated timing of regulatory submissions for our products;
    
    the anticipated timing for receipt of, and our ability to maintain, regulatory approvals
for our products; and
    
    the anticipated timing for receipt of, and our ability to maintain, reimbursement
approvals for our products in development.
  46




---



##### 



Overview
  Marketed Products
   Research and Development
   47




---



##### 



Litigation
  Strategic Corporate Restructuring
  
    
    a reduction in our head count of approximately 115 people (or approximately 45% of our
workforce);
    
    the sale of the assets related to Aczone to Allergan for $150 million;
    
    the execution of an exclusive license agreement with Reckitt for our Atrigel
sustained-release drug delivery technology, except for certain rights being retained by us
and our prior licensees, including rights retained for use with our Eligard products,
pursuant to which we received a $25 million upfront payment and may receive potential
milestone payments up to an aggregate of $5 million; and
    
    the sale of our land and building comprising our corporate headquarters and the adjacent
undeveloped parcel of land in Vancouver to Discovery Parks for CAD$65.5 million.
 Recent Developments
    48




---



##### 



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Revenue Recognition
 Net Product Revenue
     49




---



##### 



Royalties
  Licensing and Milestones
  Cost of Sales
      50




---



##### 



Stock-Based Compensation
 Share-Based Payment, Accounting for Stock-Based Payment
    Research and Development
  51




---



##### 



Income Taxes
  Accounting for Uncertainty in Income Taxes,
 Assets Held for Sale and Discontinued Operations
  Accounting for the
Impairment or Disposal of Long-Lived Assets
 Contingency Related to Legal Proceedings
   52




---



##### 



Long-Lived and Intangible Assets
  Accounting
for the Impairment or Disposal of Long-lived Assets.
  Business Combinations Determining Whether a Nonmonetary Transaction Involves Receipt
of Productive Assets or of a Business
 Impairment of Goodwill
 Goodwill and Other
Intangibles
 53




---



##### 



Recently Issued and Recently Adopted Accounting Standards
  COMPARISON OF YEARS ENDED DECEMBER 31, 2008 AND 2007
  Revenues
 Net Product Revenue
  For the year endedDecember 31,(In thousands of U.S. dollars)
    
    2008
    
    2007Visudyne sales by Novartis
    
    $
    141,865
    
    
    $
    214,857Less:     Marketing and distribution costs(1)
    
    
    (62,213
    )
    
    
    (103,903
    )Less:     Inventory costs(2)
    
    
    (11,153
    )
    
    
    (17,508
    )Less:     Royalties to third parties(3)
    
    
    (3,040
    )
    
    
    (4,546
    )$
    65,459
    
    
    $
    88,900QLTs 50% share of Novartis net proceeds from Visudyne sales
    
    $
    32,730
    
    
    $
    44,450Add:     Advance on inventory costs from Novartis (4)
    
    
    7,142
    
    
    
    11,332Add:     Royalties reimbursed to QLT(5)
    
    
    3,090
    
    
    
    4,516Add:     Other costs reimbursed to QLT(6)
    
    
    5,343
    
    
    
    7,432Revenue from Visudyne sales
    
    $
    48,305
    
    
    $
    67,730Net product revenue from Eligard
    
    
    37,877
    
    
    
    28,127$
    86,182
    
    
    $
    95,857
 (1)
    
    Less: Marketing and distribution costsThis represents Novartis cost of marketing, promoting, and distributing Visudyne, as well as
certain specified costs incurred and paid for by QLT, determined in accordance with the PDT
Product Development, Manufacturing, and Distribution Agreement between QLT and Novartis. The
costs incurred by Novartis are related to its sales force, advertising expenses, marketing,
and certain administrative overhead costs. The costs incurred by us include marketing
support, legal and administrative expenses that we incur in support of Visudyne sales.(2)
    
    Less: Inventory costsThis represents Novartis cost of goods sold related to Visudyne. It includes the cost of
bulk Visudyne we ship to Novartis and our provisions for excess or obsolete inventory, losses
on manufacturing purchase commitments, plus Novartis packaging and labelling costs, freight,
custom duties and inventory obsolescence.
 54




---



##### 



(3)
    
    Less: Royalties to third partiesThis represents the royalty expenses we incur and charge to Novartis pursuant to the PDT
Product Development, Manufacturing and Distribution Agreement between QLT and Novartis. The
amounts are calculated by us based on specified royalty rates from existing license agreements
with our licensors of certain Visudyne patent rights.(4)
    
    Add: Advance on inventory costs from NovartisThis represents the amount that Novartis advances to us for shipments of bulk Visudyne and
reimbursement for inventory obsolescence. The price of the Visudyne shipments is determined
based on the existing agreement between QLT and Novartis and represents our actual costs of
producing Visudyne.(5)
    
    Add: Royalties reimbursed to QLTThis is related to item (3) above and represents the amounts we receive from Novartis in
reimbursement for the actual royalty expenses we owe to third party licensors.(6)
    
    Add: Other costs reimbursed to QLTThis represents reimbursement by Novartis to us of our portion of the marketing and
distribution costs described in (1) above. Our marketing and distribution costs include
marketing support, legal and administrative expenses that we incur in support of Visudyne
sales.
   Royalties
  Costs and Expenses
 Cost of Sales
  55




---



##### 



Accrued Cost of Sales re: MEEI
  Research and Development
   
    
    inability to design punctal plugs to function as expected,
    
    delays or inability to formulate active ingredient in right concentration to deliver
effective doses of drug,
    
    changes in the regulatory environment,
    
    introduction of competing technologies and treatments,
    
    unexpected safety issues,
    
    patent application, maintenance and enforcement issues,
    
    changes in the commercial marketplace,
    
    difficulties in enrolling patients,
    
    delays in study progression, including regulatory delays,
    
    inability to develop cost effective manufacturing methods that comply with regulatory
standards,
    
    inability to attract personnel with expertise required by our development program,
    
    inability to manufacture sterile supplies necessary for composition of products,
    
    uncertainties related to collaborative arrangements,
    
    environmental risks, and
    
    other factors discussed under Item 1A Risk Factors.
  (In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Ocular
    
    $
    26,423
    
    
    $
    27,584
    
    
    $
    18,539Dermatology
    
    
    2,926
    
    
    
    9,031
    
    
    
    9,045Urology and Oncology
    
    
    
    
    
    
    1,831
    
    
    
    7,436Other
    
    
    219
    
    
    
    140
    
    
    
    5,938$
    29,568
    
    
    $
    38,586
    
    
    $
    40,958
  Product/Indication
    
    Location(s)
    
    StatusPunctal PlugGlaucoma and Ocular Hypertension
    
    U.S.
    
    Phase II studies ongoing
through 2009.Visudyne
 56




---



##### 



Product/Indication
    
    Location(s)
    
    StatusWet AMD
    
    U.S., Canada
    
    Phase II study of
Visudyne followed by an
anti-VEGF drug (with or
without dexamethasone)
either as a bi-therapy or
triple therapy. Plans to complete Phase
II studies in 2010.QLT091001Lebers Congenital Amaurosis (LCA)
    
    Canada
    
    Plans to complete Phase
Ia study and commence
Phase Ib study in 2009.
  Punctal Plug Drug Delivery System
    Expansion of Visudyne Therapy
   57




---



##### 



®
 QLT091001
  Selling, General and Administrative Expenses
  Litigation
     58




---



##### 



Gain on Sale of Long-Lived Asset
  In-process Research and Development
   Business Combinations Determining Whether
a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business
 Restructuring Charge
  59




---



##### 



Investment and Other Income
 Net Foreign Exchange Gains (Losses)
   For the year ended December 31,(In thousands of U.S. dollars)
    
    2008
    
    
    2007Cash and cash equivalents, and short-term investments
    
    $
    6,150
    
    
    $
    (26,963
    )Restricted cash
    
    
    23,921
    
    
    
    (5,993
    )U.S. dollar convertible debt
    
    
    (11,558
    )
    
    
    26,631Foreign exchange contracts
    
    
    8,968
    
    
    
    3,172Litigation
charge  MEEI judgment
    
    
    (23,542
    )
    
    
    7,414Foreign currency receivables and payables
    
    
    (3,296
    )
    
    
    (6,004
    )Net foreign exchange gains (losses)
    
    $
    643
    
    
    $
    (1,743
    )
 Interest Income
  Interest Expense
  60




---



##### 



Other Gains
  Income (loss) from Discontinued Operations
    Accounting for
the Impairment or Disposal of Long-lived Assets,
 Income Taxes
   61




---



##### 



COMPARISON OF YEARS ENDED DECEMBER 31, 2007 AND 2006
  Revenues
 Net Product Revenue
  For the year endedDecember 31,(In thousands of U.S. dollars)
    
    2007
    
    2006Visudyne sales by Novartis
    
    $
    214,857
    
    
    $
    353,759Less: Marketing and distribution costs(1)
    
    
    (103,903
    )
    
    
    (132,669
    )Less: Inventory costs(2)
    
    
    (17,508
    )
    
    
    (18,275
    )Less: Royalties to third parties(3)
    
    
    (4,546
    )
    
    
    (7,545
    )$
    88,900
    
    
    $
    195,270QLTs 50% share of Novartis net proceeds from Visudyne sales
    
    $
    44,450
    
    
    $
    97,635Add: Advance on inventory costs from Novartis (4)
    
    
    11,332
    
    
    
    15,063Add: Royalties reimbursed to QLT(5)
    
    
    4,516
    
    
    
    7,622Add: Other costs reimbursed to QLT(6)
    
    
    7,432
    
    
    
    9,046Revenue from Visudyne sales
    
    $
    67,730
    
    
    $
    129,366Net product revenue from Eligard
    
    
    28,127
    
    
    
    22,493$
    95,857
    
    
    $
    151,859
 (1)
    
    Less: Marketing and distribution costsThis represents Novartis cost of marketing, promoting, and distributing Visudyne, as well as
certain specified costs incurred and paid for by QLT, determined in accordance with the PDT
Product Development, Manufacturing, and Distribution Agreement between QLT and Novartis. The
costs incurred by Novartis are related to its sales force, advertising expenses, marketing,
and certain administrative overhead costs. The costs incurred by us include marketing
support, legal and administrative expenses that we incur in support of Visudyne sales.(2)
    
    Less: Inventory costsThis represents Novartis cost of goods sold related to Visudyne. It includes the cost of
bulk Visudyne we ship to Novartis and our provisions for excess or obsolete inventory, plus
Novartis packaging and labelling costs, freight, custom duties and inventory obsolescence. 62




---



##### 



(3)
    
    Less: Royalties to third partiesThis represents the royalty expenses we incur and charge to Novartis pursuant to the PDT
Product Development, Manufacturing and Distribution Agreement between QLT and Novartis. The
amounts are calculated by us based on specified royalty rates from existing license agreements
with our licensors of certain Visudyne patent rights.(4)
    
    Add: Advance on inventory costs from NovartisThis represents the amount that Novartis advances to us for shipments of bulk Visudyne and
reimbursement for inventory obsolescence. The price of the Visudyne shipments is determined
based on the existing agreement between QLT and Novartis and represents our actual costs of
producing Visudyne.(5)
    
    Add: Royalties reimbursed to QLTThis is related to item (3) above and represents the amounts we receive from Novartis in
reimbursement for the actual royalty expenses we owe to third party licensors.(6)
    
    Add: Other costs reimbursed to QLTThis represents reimbursement by Novartis to us of our portion of the marketing and
distribution costs described in (1) above. Our marketing and distribution costs include
marketing support, legal and administrative expenses that we incur in support of Visudyne
sales.
   Royalties
  Costs and Expenses
 Cost of Sales
   63




---



##### 



Accrued Cost of Sales re: MEEI
  Research and Development
  Selling, General and Administrative Expenses
  Litigation
   In-process Research and Development
   64




---



##### 



Business Combinations Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business
 Restructuring Charge
  Investment and Other Income
 Net Foreign Exchange Losses
   For the year endedDecember 31,(In thousands of U.S. dollars)
    
    2007
    
    2006Cash and cash equivalents, restricted
cash and short-term investments
    
    $
    (32,956
    )
    
    $
    733U.S. dollar convertible debt
    
    
    26,631
    
    
    
    (562
    )Foreign exchange contracts
    
    
    3,172
    
    
    
    (4,606
    )Foreign currency receivables and payables
    
    
    1,410
    
    
    
    729Net foreign exchange losses
    
    $
    (1,743
    )
    
    $
    (3,706
    )
 Interest Income
  Interest Expense
  Other Gains
  65




---



##### 



Income (Loss) from Discontinued Operations
 Accounting for the Impairment or Disposal of Long-lived
Assets,
 Accounting for the Impairment or Disposal of Long-lived Assets
 Income Taxes
    LIQUIDITY AND CAPITAL RESOURCES
    
    
    A positive cash flow variance from the deposit of cash of $118.8 million as security for
the appeal bond in 2007;
    
    A positive cash flow variance from the TAP litigation payment of $112.5 million in 2007;
    
    A positive cash flow variance from lower operating and inventory related expenditures of
$36.1 million;
    
    A positive cash flow variance from higher foreign exchange gains of $6.8 million;
    
    A negative cash flow variance from lower investment and other income of $7.5 million;
    
    A negative cash flow variance from higher restructuring costs of $3.8 million;
 66




---



##### 




    
    A negative cash flow variance from tax installments of $13.8 million;
    
    A negative cash flow variance from lower cash receipts from product sales, royalties and
milestones of $23.7 million; and
    
    A negative cash flow variance from the sale of trading securities of $58.4 million in
2007.
   Interest and Foreign Exchange Rates
      Maturity Period
    
    Quantity (millions)
    
    PriceCanadian / U.S. dollar
forward contract to buy USD
    
    
    2009
    
    
    USD 28.0
    
    1.0661 per USD
 67




---



##### 



Contractual Obligations
   (in thousands of U.S. dollars)
    
    Payments due by periodContractual Obligations(1),(2)
    
    Total
    
    Less than 1 year
    
    1-3 years
    
    3-5 years
    
    More than 5 yearsOperating Leases (3)
    
    
    4,742
    
    
    
    1,089
    
    
    
    2,133
    
    
    
    1,520
    
    
    
    Purchase Obligations (4)
    
    
    10,607
    
    
    
    7,360
    
    
    
    2,181
    
    
    
    1,066
    
    
    
    Total
    
    $
    15,349
    
    
    $
    8,449
    
    
    $
    4,314
    
    
    $
    2,586
    
    
    $
    
 (1)
    
    Upon the adoption of Financial Interpretation No. 48, Accounting for Uncertainty in Income
Taxes(FIN 48), on January 1, 2007, we recorded long-term uncertain tax liabilities of $1.8
million. FIN 48 specifies that tax positions for which the timing of the ultimate resolution
is uncertain should be recognized as long-term liabilities. At December 31, 2008, we have
approximately $2.0 million of long-term liabilities associated with uncertain tax positions.
At this time, we are unable to make a reasonably reliable estimate of the timing of future
payments, if any, due to uncertainties in the timing of future outcomes of tax audits that may
arise. As a result, uncertain tax liabilities are not included in the table above.(2)
    
    At December 31, 2008, we have an accrued liability of $125.1 million related to the MEEI
judgment. See Item 3. Legal Proceedings and Note 22  Contingencies in Notes to the
Consolidated Financial Statements in this Report. At this time, we are unable to make a
reasonably reliable estimate of the timing of future payments, if any, due to the uncertainty
of future outcome of appellate review. As a result, payment related to the above legal matter
is not included in the table above.(3)
    
    In conjunction with the sale of our land and building, we entered into a five-year operating
lease with Discovery Parks for office and laboratory space. Operating leases comprise our
long-term leases of office space, photocopiers, and postage meters.(4)
    
    Purchase obligations comprise minimum purchase requirements of our product supply agreements
with contract manufacturers ($6.4 million) and other outstanding purchase commitments related
to the normal course of business ($4.2 million). Off-Balance Sheet Arrangements
   68




---



##### 



General
    Global Market and Economic Conditions
   69




---



##### 



CERTAIN CANADIAN AND U.S. FEDERAL INCOME TAX INFORMATION FOR U.S. RESIDENTS
  Canadian Federal Tax Information
    U.S. Federal Income Tax Information
   U.S. Holders
  70




---



##### 



Sale or Other Disposition of Common Shares
   Distributions on Common Shares
    Passive Foreign Investment Company
  The Company believes that it qualified as a PFIC for 2008. Please be aware that the Companys
status as a PFIC for 2008 can have significant adverse tax consequences for U.S Holders.
 71




---



##### 



pro rata
 (a)
    
    An excess distribution generally is the excess of the amount a PFIC
distributes to a shareholder during a taxable year over 125% of the average amount it
distributed to the shareholder during the three preceding taxable years or, if shorter,
the part of the shareholders holding period before the taxable year. Distributions
with respect to the common shares made by the Company during the taxable year to a U.S.
Holder that are excess distributions must be allocated ratably to each day of the U.S.
Holders holding period. The amounts allocated to the current taxable year and to
taxable years prior to the first year in which the Company was classified as a PFIC are
included as ordinary income in a U.S. Holders gross income for that year. The amount
allocated to each other prior taxable year is taxed as ordinary income at the highest
tax rate in effect for the U.S. Holder in that prior year (without offset by any net
operating loss for such year) and the tax is subject to an interest charge at the rate
applicable to deficiencies in income taxes (the special interest charge).(b)
    
    The entire amount of any gain realized upon the sale or other disposition of
the common shares will be treated as an excess distribution made in the year of sale or
other disposition and as a consequence will be treated as ordinary income and, to the
extent allocated to years prior to the year of sale or disposition, will be subject to
the special interest charge described above.
 QEF Election pro rata pro rata pro rata
 Deemed Sale Election The rules
regarding deemed sale elections are very complex. U.S. Holders are strongly urged to consult their
tax advisors about the deemed sale election with regard to the Company and any subsidiaries.
 Mark-to-Market Election
 72




---



##### 



de minimis
 Subsidiary PFICs
 IRS Form 8621 Reporting
 THE APPLICABILITY AND CONSEQUENCES OF THE PFIC RULES ARE EXCEEDINGLY COMPLEX. IN ADDITION, THE
FOREGOING SUMMARY DOES NOT ADDRESS ALL OF THE POTENTIAL U.S. FEDERAL INCOME TAX CONSEQUENCES WITH
RESPECT TO PFIC STATUS THAT MAY BE RELEVANT TO A PARTICULAR INVESTOR IN LIGHT OF SUCH INVESTORS
PARTICULAR CIRCUMSTANCES OR THAT MAY BE RELEVANT TO INVESTORS THAT ARE SUBJECT TO SPECIAL TREATMENT
UNDER U.S. FEDERAL INCOME TAX LAW. ACCORDINGLY, INVESTORS ARE STRONGLY URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE APPLICATION OF THE PFIC RULES TO THEM AND THE ADVISABILITY OF MAKING ANY OF
THE ELECTIONS DESCRIBED ABOVE.
 73




---



##### 



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 74




---



##### 



REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 To the Board of Directors and Shareholders of
 QLT INC.
    Internal ControlIntegrated Framework
 /s/ DELOITTE & TOUCHE LLPIndependent Registered Chartered AccountantsVancouver, CanadaMarch 5, 2009
 75




---



##### 



CONSOLIDATED BALANCE SHEETS
 As at December 31,
    
    2008
    
    
    2007(In thousands of U.S. dollars)ASSETSCurrent assetsCash and cash equivalents
    
    $
    165,395
    
    
    $
    126,731Restricted cash
    
    
    124,578
    
    
    
    123,495Accounts receivable (Note 4)
    
    
    31,096
    
    
    
    25,257Income taxes receivable
    
    
    50,899
    
    
    
    48,421Inventories (Note 5)
    
    
    11,633
    
    
    
    18,511Current portion of deferred income tax assets (Note 17)
    
    
    9,835
    
    
    
    19,392Other (Note 6)
    
    
    11,144
    
    
    
    11,930404,580
    
    
    
    373,737Property, plant and equipment (Note 7)
    
    
    3,184
    
    
    
    10,017Assets held for sale
    
    
    
    
    
    
    42,732Deferred income tax assets (Note 17)
    
    
    30,216
    
    
    
    7,041Goodwill (Note 9)
    
    
    23,145
    
    
    
    94,903Mortgage receivable
    
    
    9,834
    
    
    
    Long-term inventories and other assets (Note 10)
    
    
    20,799
    
    
    
    20,557$
    491,758
    
    
    $
    548,987LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    9,115
    
    
    $
    8,486Accrued restructuring charge (Note 16)
    
    
    726
    
    
    
    153Accrued liabilities (Note 11)
    
    
    129,512
    
    
    
    123,294Convertible debt (Note 12)
    
    
    
    
    
    
    172,500Current portion of deferred revenue
    
    
    5,673
    
    
    
    8,431Current portion of deferred income tax liabilities (Note 17)
    
    
    
    
    
    
    11,291145,026
    
    
    
    324,155Uncertain tax position liabilities(Note 17)
    
    
    2,033
    
    
    
    2,070Deferred revenue
    
    
    1,469
    
    
    
    2,939148,528
    
    
    
    329,164COMMITMENTS AND GUARANTEES (NOTE 20)CONTINGENCIES (NOTE 22)SHAREHOLDERS EQUITYShare capital (Note 14)Authorized500,000,000 common shares without par value5,000,000 first preference shares without par value,
issuable in seriesIssued and outstandingCommon shares
    
    
    702,221
    
    
    
    702,221December 31, 2008 74,620,328 sharesDecember 31, 2007 74,620,328 sharesAdditional paid in-capital
    
    
    123,367
    
    
    
    119,779Accumulated deficit
    
    
    (579,564
    )
    
    
    (714,455
    )Accumulated other comprehensive income
    
    
    97,206
    
    
    
    112,278343,230
    
    
    
    219,823$
    491,758
    
    
    $
    548,987
  76




---



##### 



CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended December 31,
    
    2008
    
    
    2007
    
    
    2006(In thousands of U.S. dollars except per share information)RevenuesNet product revenue (Note 15)
    
    $
    86,182
    
    
    $
    95,857
    
    
    $
    151,859Royalties
    
    
    33,643
    
    
    
    30,362
    
    
    
    21,099Licensing, milestones and other
    
    
    4,315
    
    
    
    1,387
    
    
    
    1,178124,140
    
    
    
    127,606
    
    
    
    174,136Costs and expensesCost of sales
    
    
    49,675
    
    
    
    45,396
    
    
    
    42,191Accrued cost of sales re: MEEI (Note 22)
    
    
    4,249
    
    
    
    2,830
    
    
    
    Research and development
    
    
    29,568
    
    
    
    38,586
    
    
    
    40,958Selling, general and administrative
    
    
    21,705
    
    
    
    25,794
    
    
    
    41,399Depreciation
    
    
    2,947
    
    
    
    5,330
    
    
    
    5,144Litigation (Note 22)
    
    
    864
    
    
    
    110,162
    
    
    
    112,500Gain on sale of long-lived assets
    
    
    (21,666
    )
    
    
    
    
    
    
    Purchase of in-process research and development
    
    
    
    
    
    
    42,865
    
    
    
    Restructuring charges (Note 16)
    
    
    10,162
    
    
    
    938
    
    
    
    2,82897,504
    
    
    
    271,901
    
    
    
    245,020Operating income (loss)
    
    
    26,636
    
    
    
    (144,295
    )
    
    
    (70,884
    )Investment and other income (expense)Net foreign exchange gains (losses)
    
    
    643
    
    
    
    (1,743
    )
    
    
    (3,706
    )Interest income
    
    
    7,249
    
    
    
    14,278
    
    
    
    20,488Interest expense
    
    
    (10,339
    )
    
    
    (9,026
    )
    
    
    (6,595
    )Other gains
    
    
    290
    
    
    
    4,813
    
    
    
    2,773Income (loss) from continuing operations before income taxes
    
    
    24,479
    
    
    
    (135,973
    )
    
    
    (57,924
    )(Provision for) recovery of income taxes (Note 17)
    
    
    (9,527
    )
    
    
    32,647
    
    
    
    (15,134
    )Income (loss) from continuing operations
    
    $
    14,952
    
    
    $
    (103,326
    )
    
    $
    (73,058
    )Income (loss) from discontinued operations, net of income
tax (Note 18)
    
    
    119,939
    
    
    
    (6,671
    )
    
    
    (28,547
    )Net income (loss)
    
    $
    134,891
    
    
    $
    (109,997
    )
    
    $
    (101,605
    )Basic net income (loss) per common shareContinuing operations
    
    $
    0.20
    
    
    $
    (1.38
    )
    
    $
    (0.86
    )Discontinued operations
    
    
    1.61
    
    
    
    (0.09
    )
    
    
    (0.34
    )Net income (loss)
    
    $
    1.81
    
    
    $
    (1.47
    )
    
    $
    (1.20
    )Diluted net income (loss) per common shareContinuing operations
    
    $
    0.20
    
    
    $
    (1.38
    )
    
    $
    (0.86
    )Discontinued operations
    
    
    1.61
    
    
    
    (0.09
    )
    
    
    (0.34
    )Net income (loss)
    
    $
    1.81
    
    
    $
    (1.47
    )
    
    $
    (1.20
    )Weighted average number of common shares outstanding (thousands)Basic
    
    
    74,620
    
    
    
    74,907
    
    
    
    84,596Diluted
    
    
    74,620
    
    
    
    74,907
    
    
    
    84,596
  77




---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended December 31,
    
    2008
    
    
    2007
    
    
    2006(In thousands of U.S. dollars)Cash flows (used in) provided by operating activitiesNet income (loss)
    
    $
    134,891
    
    
    $
    (109,997
    )
    
    $
    (101,605
    )Adjustments to reconcile net income to net cash from
operating activitiesWrite-down of assets held for sale
    
    
    
    
    
    
    
    
    
    
    8,592In-process research and development
    
    
    
    
    
    
    42,865
    
    
    
    Amortization of intangibles
    
    
    
    
    
    
    
    
    
    
    78Depreciation
    
    
    2,947
    
    
    
    6,710
    
    
    
    7,087Write-down of fixed assets, investments and deposit
    
    
    1,715
    
    
    
    403
    
    
    
    1,013Write-down of inventory
    
    
    7,066
    
    
    
    3,074
    
    
    
    2,584Amortization of deferred financing expenses
    
    
    851
    
    
    
    1,290
    
    
    
    1,218Gain on sale of long-lived assets
    
    
    (21,666
    )
    
    
    (3,989
    )
    
    
    Gain on sale of Atrigel discontinued operations
    
    
    (16,717
    )
    
    
    
    
    
    
    Gain on sale of Aczone discontinued operations
    
    
    (118,157
    )
    
    
    
    
    
    
    Trading securities
    
    
    
    
    
    
    58,357
    
    
    
    (58,357
    )Share-based compensation
    
    
    3,391
    
    
    
    3,502
    
    
    
    4,284Unrealized foreign exchange gains
    
    
    9,731
    
    
    
    (22,420
    )
    
    
    (9,503
    )Interest earned on restricted cash
    
    
    (3,344
    )
    
    
    (2,509
    )
    
    
    (41
    )Deferred income taxes
    
    
    12,685
    
    
    
    7,656
    
    
    
    (10,471
    )Loss on disposal of assets held for sale
    
    
    
    
    
    
    
    
    
    
    8,001Litigation
    
    
    
    
    
    
    110,162
    
    
    
    Accrued cost of sales and interest re: MEEI
    
    
    10,087
    
    
    
    5,403
    
    
    
    Changes in non-cash operating assets and liabilitiesAppeal bond collateral
    
    
    
    
    
    
    (118,781
    )
    
    
    Accounts receivable
    
    
    (7,698
    )
    
    
    16,800
    
    
    
    7,137Inventories
    
    
    (4,824
    )
    
    
    (3,191
    )
    
    
    6,573Other current assets
    
    
    (1,966
    )
    
    
    5,590
    
    
    
    6,351Long-term deposit
    
    
    (1,754
    )
    
    
    
    
    
    
    Accounts payable
    
    
    1,397
    
    
    
    (6,254
    )
    
    
    (476
    )Income tax receivable
    
    
    (12,455
    )
    
    
    (44,429
    )
    
    
    (21,694
    )Accrued restructuring charge
    
    
    703
    
    
    
    (2,306
    )
    
    
    (2,836
    )Other accrued liabilities
    
    
    (2,908
    )
    
    
    (118,811
    )
    
    
    107,837Deferred revenue
    
    
    (3,029
    )
    
    
    (4,763
    )
    
    
    1,396(9,054
    )
    
    
    (175,638
    )
    
    
    (42,832
    )Cash provided by (used in) investing activitiesShort-term investment securities
    
    
    
    
    
    
    16,435
    
    
    
    112,834Net proceeds from sale of long-lived assets, net of mortgage
    
    
    49,784
    
    
    
    
    
    
    
    Net proceeds from out-license of Atrigel
    
    
    23,817
    
    
    
    
    
    
    
    Net proceeds from sale of Aczone
    
    
    147,364
    
    
    
    
    
    
    
    Restricted cash
    
    
    2,307
    
    
    
    1,689
    
    
    
    (3,875
    )Purchase of property, plant and equipment
    
    
    (516
    )
    
    
    (2,066
    )
    
    
    (6,546
    )Proceeds on disposal of property, plant and equipment
    
    
    86
    
    
    
    
    
    
    
    20,728Proceeds on sale of assets
    
    
    
    
    
    
    4,035
    
    
    
    Acquisition of ForSight Newco. II, Inc.
    
    
    
    
    
    
    (42,631
    )
    
    
    222,842
    
    
    
    (22,538
    )
    
    
    123,141Cash used in financing activitiesRedemption of convertible debt
    
    
    (172,500
    )
    
    
    
    
    
    
    Common shares repurchased, net of fees
    
    
    
    
    
    
    (5,878
    )
    
    
    (129,433
    )Issuance of common shares
    
    
    
    
    
    
    1,260
    
    
    
    817(172,500
    )
    
    
    (4,618
    )
    
    
    (128,616
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (2,624
    )
    
    
    30,472
    
    
    
    1,561
 78




---



##### 



Year ended December 31,
    
    2008
    
    
    2007
    
    
    2006(In thousands of U.S. dollars)Net increase (decrease) in cash and cash equivalents
    
    
    38,664
    
    
    
    (172,322
    )
    
    
    (46,746
    )Cash and cash equivalents, beginning of year
    
    
    126,731
    
    
    
    299,053
    
    
    
    345,799Cash and cash equivalents, end of year
    
    $
    165,395
    
    
    $
    126,731
    
    
    $
    299,053Supplementary cash flow information:Interest paid
    
    $
    5,571
    
    
    $
    5,861
    
    
    $
    5,792Income taxes paid
    
    
    13,997
    
    
    
    148
    
    
    
    40,235
  79




---



##### 



CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 AccumulatedAdditional
    
    Other
    
    
    
    
    
    
    
    
    
    TotalCommon Shares
    
    Paid-in
    
    Comprehensive
    
    Accumulated
    
    Comprehensive
    
    ShareholdersShares
    
    Amount
    
    Capital
    
    Income (Loss)
    
    Deficit
    
    Income (Loss)
    
    Equity(All amounts except share and per share information are expressed in thousands of U.S. dollars)Balance at December 31, 2005
    
    
    91,184,681
    
    
    $
    861,676
    
    
    $
    66,565
    
    
    $
    99,515
    
    
    $
    (501,645
    )
    
    $
    
    
    
    $
    526,111Exercise of stock options at prices ranging
from CAD $7.79 to CAD $9.22 per share and
U.S. $2.89 - U.S. $8.64 per share
    
    
    127,299
    
    
    
    2,387
    
    
    
    (1,574
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    813Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,586
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,586Common share repurchase
    
    
    (16,123,000
    )
    
    
    (155,857
    )
    
    
    45,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110,710
    )Other comprehensive loss:Cumulative translation adjustment from
application of U.S. dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,187
    )
    
    
    
    
    
    
    (16,187
    )
    
    
    (16,187
    )Unrealized gain on available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    207
    
    
    
    207Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,605
    )
    
    
    (101,605
    )
    
    
    (101,605
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117,585
    )
    
    
    Balance at December 31, 2006
    
    
    75,188,980
    
    
    $
    708,206
    
    
    $
    114,724
    
    
    $
    83,535
    
    
    $
    (603,251
    )
    
    $
    
    
    
    $
    303,214Adjustment for the
adoption of FASB
Interpretation No. 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,207
    )
    
    
    
    
    
    
    (1,207
    )Exercise of stock
options at prices
ranging from CAD $7.79
to CAD $9.84 per share
and U.S. $2.89 - U.S.
$9.29 per share
    
    
    181,348
    
    
    
    2,597
    
    
    
    (1,344
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,253Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,696Common share repurchase
    
    
    (750,000
    )
    
    
    (8,582
    )
    
    
    2,703
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,879
    )Other comprehensive loss:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,728
    
    
    
    
    
    
    
    28,728
    
    
    
    28,728Unrealized gain on
available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    15Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109,997
    )
    
    
    (109,997
    )
    
    
    (109,997
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81,254
    )
    
    
    Balance at December 31,
2007
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    119,779
    
    
    $
    112,278
    
    
    $
    (714,455
    )
    
    $
    
    
    
    $
    219,823Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,588Other comprehensive
income:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,072
    )
    
    
    
    
    
    
    (15,072
    )
    
    
    (15,072
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,891
    
    
    
    134,891
    
    
    
    134,891Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,819
    
    
    
    Balance at December 31,
2008
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    123,367
    
    
    $
    97,206

(1)
    
    $
    (579,564
    )
    
    $
    
    
    
    $
    343,230
 80




---



##### 



(1)
    
    At December 31, 2008, our accumulated other
comprehensive income was related almost entirely
to cumulative translation adjustments from the application of U.S. dollar reporting.  81




---



##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 ® ® ®
 1. BASIS OF PRESENTATION
    2. PRINCIPLES OF CONSOLIDATION
  3. SIGNIFICANT ACCOUNTING POLICIES
 Use of Estimates
  Reporting Currency and Foreign Currency Translation
  82




---



##### 



Segment Information
  Cash and Cash Equivalents
  Inventories
  Investments
  Long-lived and Intangible Assets
  Accounting
for the Impairment or Disposal of Long-lived Assets.
   83




---



##### 



Business
Combinations Determining Whether a Nonmonetary
Transaction Involves Receipt of Productive Assets or of a Business
 Goodwill Impairment
 Goodwill and Other Intangibles
   Property, Plant and Equipment
  Method
    
    YearsOffice furnishings, fixtures and other
    
    Straight-line
    
    5Research and commercial manufacturing equipment
    
    Straight-line
    
    3-5Computer hardware and operating system
    
    Straight-line
    
    3-5
 Revenue Recognition
 Net Product Revenues
    84




---



##### 



Royalties
  Licensing and Milestones
  Cost of Sales
  Stock-Based Compensation
 Share-Based Payment, Accounting for
Stock-Based Payment
 85




---



##### 



Research and Development
  Income Taxes
  Derivative Financial Instruments
  86




---



##### 



Discontinued Operations
   Contingencies Related to Legal Proceedings
  Net Income (Loss) Per Common Share
   87




---



##### 



(In thousands of U.S. dollars, except per share data)
    
    2008
    
    
    2007
    
    
    2006Numerator:Income (loss) from continuing operations
    
    $
    14,952
    
    
    $
    (103,326
    )
    
    $
    (73,058
    )Income (loss) from discontinued operations, net of tax
    
    
    119,939
    
    
    
    (6,671
    )
    
    
    (28,547
    )Net income (loss)
    
    $
    134,891
    
    
    $
    (109,997
    )
    
    $
    (101,605
    )Effect of dilutive securities:Convertible senior notes  interest expense
    
    
    
    
    
    
    
    
    
    
    Adjusted income (loss)
    
    $
    134,891
    
    
    $
    (109,997
    )
    
    $
    (101,605
    )Denominator: (thousands)Weighted average common shares outstanding
    
    
    74,620
    
    
    
    74,907
    
    
    
    84,596Effect of dilutive securities:Stock options
    
    
    
    
    
    
    
    
    
    
    Convertible senior notes
    
    
    
    
    
    
    
    
    
    
    Diluted potential common shares
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average common shares outstanding
    
    
    74,620
    
    
    
    74,907
    
    
    
    84,596Basic net income (loss) per common share:Continuing operations
    
    $
    0.20
    
    
    $
    (1.38
    )
    
    $
    (0.86
    )Discontinued operations
    
    
    1.61
    
    
    
    (0.09
    )
    
    
    (0.34
    )Net income (loss)
    
    $
    1.81
    
    
    $
    (1.47
    )
    
    $
    (1.20
    )Diluted net income (loss) per common share:Continuing operations
    
    $
    0.20
    
    
    $
    (1.38
    )
    
    $
    (0.86
    )Discontinued operations
    
    
    1.61
    
    
    
    (0.09
    )
    
    
    (0.34
    )Net income (loss)
    
    $
    1.81
    
    
    $
    (1.47
    )
    
    $
    (1.20
    )
  88




---



##### 



Recently Issued Accounting Standards
 Fair Value Measurements, Effective Date of FASB Statement No. 157,
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115
 Accounting for Collaborative
Arrangement Related to the Development and Commercialization of Intellectual Property.
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements  an amendment of Accounting Research Bulletin No. 51
 Disclosures about Derivative Instruments and Hedging
Activities-an amendment of SFAS 133
 89




---



##### 



Accounting for
Derivative Instruments and Hedging Activities
 The Hierarchy of Generally Accepted Accounting Principles
 4. ACCOUNTS RECEIVABLE
 (In thousands of U.S. dollars)
    
    2008
    
    2007Visudyne
    
    $
    11,056
    
    
    $
    11,609Royalties
    
    
    10,620
    
    
    
    8,193Sales milestones
    
    
    3,000
    
    
    
    Contract research and development
    
    
    
    
    
    
    213Eligardproduct shipments
    
    
    6,315
    
    
    
    5,049Trade and other
    
    
    105
    
    
    
    318Allowance for doubtful accounts
    
    
    
    
    
    
    (125
    )$
    31,096
    
    
    $
    25,257
  5. INVENTORIES
 (In thousands of U.S. dollars)
    
    2008
    
    2007Raw materials and supplies
    
    $
    6,308
    
    
    $
    12,653Work-in-process
    
    
    30,445
    
    
    
    33,819Finished goods
    
    
    256
    
    
    
    67Provision for excess inventory
    
    
    (2,471
    )
    
    
    (3,020
    )Provision for non-completion of product inventory
    
    
    (3,735
    )
    
    
    (4,613
    )$
    30,803
    
    
    $
    38,906Less: Long-term inventory, net of provisions
    
    
    19,170
    
    
    
    20,395$
    11,633
    
    
    $
    18,511
   90




---



##### 



6. OTHER CURRENT ASSETS
 (In thousands of U.S. dollars)
    
    2008
    
    2007Inventory in transit held by Novartis
    
    $
    5,555
    
    
    $
    7,995Foreign exchange contracts
    
    
    3,542
    
    
    
    1,236Deferred financing expenses
    
    
    
    
    
    
    863Prepaid expenses and other
    
    
    2,047
    
    
    
    1,836$
    11,144
    
    
    $
    11,930
  7. PROPERTY, PLANT AND EQUIPMENT
 2008Accumulated
    
    Net(In thousands of U.S. dollars)
    
    Cost
    
    Depreciation
    
    Book ValueLeasehold improvements
    
    $
    169
    
    
    $
    11
    
    
    $
    158Office furnishings, fixtures, and other
    
    
    38
    
    
    
    24
    
    
    
    14Research equipment
    
    
    1,124
    
    
    
    666
    
    
    
    458Commercial manufacturing equipment
    
    
    3,563
    
    
    
    2,852
    
    
    
    711Computer hardware and operating system
    
    
    10,783
    
    
    
    8,940
    
    
    
    1,843$
    15,677
    
    
    $
    12,493
    
    
    $
    3,184
 2007Accumulated
    
    Net(In thousands of U.S. dollars)
    
    Cost
    
    Depreciation
    
    Book ValueLeasehold improvement
    
    $
    
    
    
    $
    
    
    
    $
    Office furnishings, fixtures, and other
    
    
    1,085
    
    
    
    735
    
    
    
    350Research equipment
    
    
    12,776
    
    
    
    8,808
    
    
    
    3,968Commercial manufacturing equipment
    
    
    4,905
    
    
    
    3,470
    
    
    
    1,435Computer hardware and operating system
    
    
    20,763
    
    
    
    16,499
    
    
    
    4,264$
    39,529
    
    
    $
    29,512
    
    
    $
    10,017
   91




---



##### 



8. ACQUISITION OF FORSIGHT NEWCO II, INC.
   (In thousands of U.S. dollars)Purchase PriceCash paid
    
    $
    (41,447
    )Acquisition costs
    
    
    (891
    )$
    (42,338
    )Assets & Liabilities AcquiredNet working capital
    
    $
    (83
    )Property & equipment
    
    
    108Accrued change of control bonus
    
    
    (552
    )In-process R&D
    
    
    42,865$
    42,338
   Business Combinations Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business
 9. GOODWILL AND INTANGIBLE ASSETS
  92




---



##### 



(In thousands of U.S. dollars)
    
    GoodwillBalance as of December 31, 2006
    
    $
    98,641Reduction in valuation allowance against deferred tax assets*
    
    
    (3,738
    )Balance as of December 31, 2007
    
    $
    94,903Reduction in valuation allowance against deferred tax assets*
    
    
    (39,354
    )Allocation to cost of dispositions  discontinued operations
(sale of Aczone, out-license of certain Atrigel rights, and sale
of Atrigel equipment)
    
    
    (32,404
    )Balance as of December 31, 2008
    
    $
    23,145
 *
    
    We reduced our valuation allowance relating to various tax assets (including tax loss
carryforwards and research and development credit carryforwards) that were acquired upon the
acquisition of Atrix Laboratories, Inc. in 2004. (See Note 17  Income Taxes.)
 10. LONG-TERM INVENTORIES AND OTHER ASSETS
 (In thousands of U.S. dollars)
    
    2008
    
    2007Inventory, net of provisions
    
    $
    19,170
    
    
    $
    20,395Other
    
    
    1,629
    
    
    
    162$
    20,799
    
    
    $
    20,557
 11. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    2008
    
    2007Royalties
    
    $
    713
    
    
    $
    1,033Compensation
    
    
    3,257
    
    
    
    5,263Interest
    
    
    418
    
    
    
    1,560Litigation charge  MEEI judgment (Note 22)
    
    
    125,119
    
    
    
    115,027Other
    
    
    5
    
    
    
    411$
    129,512
    
    
    $
    123,294
 93




---



##### 



12. CONVERTIBLE DEBT
  13. FOREIGN EXCHANGE FACILITIES
  14. SHARE CAPITAL
 (a)
    
    Authorized SharesThere were no changes to the authorized share capital of QLT during the three-year period
ended December 31, 2008.(b)
    
    Share Buy-Back ProgramOn April 28, 2005, we announced a share buy-back program pursuant to which we could purchase
up to $50.0 million of our common shares over a two-year period. In December 2005, we
increased the amount that could be purchased to $100.0 million of our common shares over a
two-year period ending May 2007. The share purchases were made as a normal course issuer bid
and were effected in the open market through the facilities of the TSX and the NASDAQ and in
accordance with all regulatory requirements. Cumulative purchases under this program from
May 2005 to July 2006 were 6,264,400 common shares at an average price of $8.20, for a total
cost of $51.3 million.On July 27, 2006, we terminated this normal course issuer bid as a result of our decision to
proceed with an offer to purchase up to 13 million common shares in a modified Dutch
Auction tender offer. Under this Dutch Auction tender offer, shareholders were invited
to tender all or a portion of their shares at a price per share that was not less than
US$7.00 and not greater than US$8.00. Based on the number of shares tendered and the prices
specified by the tendering shareholders, we determined the lowest price per share within the
range that allowed us to buy 13 million shares properly tendered. The tender offer
commenced on August 3, 2006 and expired on September 8, 2006. As a result of this tender
offer, we accepted for purchase and cancellation 13 million common shares at a price of
$8.00 per share, totalling $104.0 million. These shares represented approximately 14.7% of
the shares outstanding as of September 8, 2006.On June 4, 2007, our Board of Directors announced a share buy-back program pursuant to
which we had the right to purchase up to $50.0 million of our outstanding common shares or up
to 5.7 million common shares over a 12-month period commencing on June 11, 2007. The share
purchases were to be made as a normal course issuer bid. All purchases were to be effected
in the open market through the facilities of the TSX or NASDAQ, and in accordance with all
regulatory requirements. Cumulative purchases under this program since June 11, 2007 were
750,000 shares at an average price of $7.82, for a total cost of $5.9 million.On December 1, 2008, we announced our decision to proceed with a modified Dutch Auction
tender offer to purchase a number of shares of our common stock that does not exceed an
aggregate purchase price of $50.0 million. Under this Dutch Auction tender offer,
shareholders were invited to tender all or a portion of their shares at a price per share
that was not less than $2.20 and not greater than $2.50. Based on the number of shares
tendered and the prices specified by the tendering shareholders, we determined the lowest
 94




---



##### 



price per share within the range that allowed us to buy $50.0 million of shares properly
tendered. The tender offer commenced on December 31, 2008 and expired on January 26, 2009.
As a result of this tender offer, we accepted for purchase and cancellation 20 million
common shares at a price of $2.50 per share, totalling $50.0 million. These shares
represented approximately 26.8% of the shares outstanding as of January 26, 2009.(c)
    
    Stock OptionsWe currently maintain two equity compensation plans which provide for the issuance of common shares to employees, officers and directors, both of which have been approved by the
shareholders, namely the 2000 Incentive Stock Option Plan and the 2000 Atrix Performance
Stock Option Plan.As of December 31, 2008, no QLT securities remain available for issuance under the 1998
Stock Option Plan or the 1987 Atrix Performance Stock Option Plan and no options previously
granted under these plans remain outstanding.None of these plans have been amended in the last fiscal year and there are no entitlements
previously granted under any of these plans that remain subject to ratification by security
holders. No financial assistance is provided by us to the participants under these plans to
facilitate the exercise of options.Exercise PricePursuant to the terms of each of our plans, the exercise price of options granted will be
determined by the Compensation Committee, but will in no event be less than the fair market
value of our common shares immediately preceding the grant. As such, the exercise price for
options granted under all our plans is the closing price on the TSX (for Canadian employees)
or NASDAQ (for U.S. employees) immediately preceding the grant.Exercise PeriodAlthough the plans provide discretion to the Compensation Committee or QLTs board to have
an exercise period of up to 10 years, all options granted under the 2000 Incentive Stock
Option Plan have an exercise period of five years. Under the 2000 Atrix Performance Stock
Option Plan, Atrix previously provided a ten year exercise period to optionees. However,
since our acquisition of Atrix on November 19, 2004, all options granted under the 2000
Atrix Performance Stock Option Plan have been given a five year exercise period.VestingUnder the 2000 Incentive Stock Option Plan vesting of options granted under such plans
occurs monthly over 36 months, subject to such altered vesting schedules as the Compensation
Committee or QLTs Board may determine. For senior managers, executive officers and
Directors and excluding some situations of retirement and service periods over 20 years, 50%
of any unvested options vest on the termination of employment without cause, and 100% of
unvested options vest on the occurrence of a change of control.All options granted under the 2000 Atrix Performance Stock Option Plan prior to our
acquisition of Atrix became 100% vested as a condition of the transaction. Since the
acquisition of Atrix, options granted under the 2000 Atrix Performance Stock Option Plan
have vested monthly over 36 months.Below is a summary of certain of the key terms of each of the equity compensation plans that
we currently maintain:
 (i)
    
    2000 Incentive Stock Option Plan, or 2000 PlanShare Reserve. We have reserved an aggregate of 7,000,000 common shares for issuance
under the 2000 Incentive Stock Option Plan. Common shares with respect to options that
are not exercised in full will be available for grant under subsequent options under
this plan. In addition, the number of common shares reserved for issuance to any one
person shall not, in the aggregate, exceed five percent
 95




---



##### 



of the issued and outstanding common shares (on a non-diluted basis). The Compensation
Committee will not grant options to a Director who is not an employee or executive of
QLT where such grant will result in those Directors who are not employees or executives
of QLT and who hold options under this plan, holding, in the aggregate, more than 0.25%
of the issued and outstanding common shares (on a non-diluted basis). At December 31,
2008, options to purchase an aggregate total of 5,086,487 common shares were outstanding
under the 2000 Plan and exercisable in the future at prices ranging between CAD $2.60
and CAD $32.85 per common share.Administration. The Compensation Committee administers the 2000 Incentive Stock Option
Plan.Eligibility. The Directors, officers, employees and consultants of QLT or our
affiliated companies, who are or will be, in the opinion of the Compensation Committee,
important for our growth and success and whose participation in this 2000 Incentive
Stock Option Plan will, in the opinion of the Compensation Committee, accomplish the
purposes of this 2000 Incentive Stock Option Plan, are eligible to participate in the
2000 Incentive Stock Option Plan.Grant and Exercise of Options. Subject to the terms of the 2000 Incentive Stock Option
Plan, the Compensation Committee may grant to any eligible person one or more options as
it deems appropriate. The Compensation Committee may also impose such limitations or
conditions on the exercise or vesting of any option as it deems appropriate.An option will expire automatically on the earlier of (i) the date on which such option
is exercised in respect of all of the common shares that may be purchased under this
2000 Incentive Stock Option Plan, and (ii) the date fixed by the Compensation Committee
as the expiry date of such option, which date will not be more than ten years from the
date of grant.If an optionees status as an eligible person terminates as a result of retirement or
ceases to be a consultant by normal termination of the consulting agreement or ceases to
be a Director of QLT, and if such optionee has worked on behalf of QLT for at least 20
years or is at least 60 years of age and has worked continuously for at least five
years, all options of such optionee will become immediately vested and will be
exercisable until the expiry of the options. In all other cases of employee retirement
or Director or consultant cessation of services, all options will become immediately
vested and will be exercisable for a period of the earlier of 90 days and the expiry of
the options. If the optionees status as an eligible person is terminated for cause,
the option shall terminate immediately. If an optionees status as an eligible person
is terminated as a result of disability, the option will expire 12 months after the date
of termination, or on such other date determined by the Compensation Committee and
specified in the option agreement. If the optionee dies before, otherwise ceasing to be
an eligible person, or before the expiration of the option following such a termination,
the option will expire 12 months after the date of death, or on such other date
determined by the Compensation Committee and specified in the option agreement.
Notwithstanding the foregoing, except as expressly permitted by our Compensation
Committee, all stock options will cease to vest as at the date upon which the optionee
ceases to be eligible to participate in this plan.Transferability. No option may be transferred or assigned except by will or by
operation of the laws of devolution or distribution and descent or pursuant to a
qualified domestic relations order, as defined by the U.S. Internal Revenue Code of 1986
and may be exercised only by an optionee during his or her lifetime.Amendments or Termination. Our Compensation Committee has the right at any time to
suspend, amend or terminate the 2000 Incentive Stock Option Plan, but will not have the
right to (i) affect in a manner that is adverse or prejudicial to, or that impairs, the
benefits and rights of any optionee under any option previously granted without the
consent of such optionee; (ii) decrease the number of common shares that may be issued
pursuant to any option granted under this plan without the consent of such optionee;
(iii) increase the option exercise price without the consent of the optionee; and (iv)
grant any option if this plan has been suspended.(ii)
    
    2000 Atrix Performance Stock Option Plan, or 2000 Atrix Plan
 96




---



##### 



Share Reserve. Prior to our acquisition of Atrix on November 19, 2004, an aggregate of
4,750,000 common shares of Atrix Laboratories, Inc. had been reserved for issuance under
the 2000 Atrix Performance Stock Option Plan. Shares covered by an option grant which
are forfeited or cancelled, expire or are settled in cash, shall be deemed not to have
been issued for purposes of determining the maximum aggregate number of shares which may
be issued under this plan. The maximum number of common shares with respect to which
options may be granted to any one person in any fiscal year of Atrix shall be 400,000
shares. Where an optionee commences the provision of continuous service, the optionee
may be granted options for up to an additional 300,000 shares which shall not count
against the 400,000 limit. Upon acquisition, the Company assumed the remaining options
outstanding and issuable under the 2000 Atrix Performance Stock Option Plan which, after
converting, provide for the issuance of up to 6,794,636 common shares of QLT. At
December 31, 2008, options to purchase an aggregate of 255,207 common shares were
outstanding under the 2000 Atrix Plan and exercisable at prices ranging between U.S.
$3.78 and U.S. $16.46 per common share.Administration. The Compensation Committee administers the plan.Eligibility. Awards other than incentive stock options as defined in Section 422 of the
Internal Revenue Code, may be granted to employees, Directors and consultants.
Incentive stock options as defined in Section 422 of the Internal Revenue Code may be
granted only to employees of Atrix, parent or its subsidiary.Grant and Exercise of Options. The Compensation Committee may grant to any eligible
person one or more options as it deems appropriate and may also impose such limitations
or conditions on the exercise or vesting of any option as it deems appropriate.An option will expire automatically on the earlier of (i) the date on which such option
is exercised in respect of all of the common shares that may be purchased under this
plan, and (ii) the date fixed by the Compensation Committee as the expiry date of such
option, which date will not be more than ten years from the date of grant (or five years
for an option granted to an optionee that owns shares representing more than 10% of the
voting power of all classes of shares of Atrix or its parent or subsidiary).Transferability. No incentive stock option may be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by the
laws of descent or distribution and may be exercised only by an optionee during his or
her lifetime. Other awards may be transferred by gift or through a domestic relations
order to a member of the grantees immediate family to the extent provided for in the
stock option agreement or determined and to the extent determined by the Compensation
Committee.Amendments or Termination. Our Compensation Committee has the right at any time to
suspend, amend or terminate the 2000 Atrix Performance Stock Option Plan. No options
may be granted during any suspension of this plan, or after termination of this plan.
Any amendment, suspension or termination shall not affect options already granted, and
such awards shall remain in full force and effect as if the plan had not been amended,
suspended or terminated, unless mutually agreed otherwise, which agreement must be in
writing and signed by the optionee and Atrix.
 97




---



##### 



Weighted-AverageWeighted Average
    
    Remaining Contractual(In Canadian dollars)
    
    Number of Options
    
    Exercise Price
    
    Term (Years)Outstanding at December 31, 2005
    
    
    5,469,850
    
    
    $
    25.28Granted
    
    
    1,846,968
    
    
    
    8.77Exercised
    
    
    (2,153
    )
    
    
    7.87Forfeited and expired
    
    
    (3,248,643
    )
    
    
    30.19Outstanding at December 31, 2006
    
    
    4,066,022
    
    
    $
    13.87Granted
    
    
    1,398,096
    
    
    
    8.38Exercised
    
    
    (30,632
    )
    
    
    8.37Forfeited and expired
    
    
    (1,080,114
    )
    
    
    16.40Outstanding at December 31, 2007
    
    
    4,353,372
    
    
    $
    11.52Granted
    
    
    2,304,250
    
    
    
    3.73Exercised
    
    
    
    
    
    
    Forfeited and expired
    
    
    (1,571,135
    )
    
    
    11.66Outstanding at December 31, 2008
    
    
    5,086,487
    
    
    $
    7.95
    
    
    
    3.23Exercisable at December 31, 2008
    
    
    2,679,513
    
    
    $
    10.71
    
    
    
    2.44
  Weighted-AverageWeighted Average
    
    Remaining Contractual(In U.S. dollars)
    
    Number of Options
    
    Exercise Price
    
    Term (Years)Outstanding at December 31, 2005
    
    
    4,177,374
    
    
    $
    12.59Granted
    
    
    322,085
    
    
    
    8.15Exercised
    
    
    (125,146
    )
    
    
    6.38Forfeited and expired
    
    
    (1,374,157
    )
    
    
    12.86Outstanding at December 31, 2006
    
    
    3,000,156
    
    
    $
    12.31Granted
    
    
    211,235
    
    
    
    7.07Exercised
    
    
    (150,716
    )
    
    
    6.89Forfeited and expired
    
    
    (1,768,292
    )
    
    
    12.76Outstanding at December 31, 2007
    
    
    1,292,383
    
    
    $
    11.46Granted
    
    
    97,250
    
    
    
    3.78Exercised
    
    
    
    
    
    
    Forfeited and expired
    
    
    (1,134,426
    )
    
    
    11.24Outstanding at December 31, 2008
    
    
    255,207
    
    
    $
    9.52
    
    
    
    2.67Exercisable at December 31, 2008
    
    
    180,213
    
    
    $
    10.99
    
    
    
    2.22
  98




---



##### 



2008
    
    2007
    
    2006Annualized volatility
    
    
    42.1
    %
    
    
    37.0
    %
    
    
    44.5
    %Risk-free interest rate
    
    
    2.9
    %
    
    
    4.4
    %
    
    
    4.1
    %Expected life (years)
    
    
    3.9
    
    
    
    3.3
    
    
    
    3.0Dividends
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    99




---



##### 



(In thousands of U.S. dollars, except share information)
    
    2008
    
    2007
    
    2006Cost of sales
    
    $
    78
    
    
    $
    43
    
    
    $
    213Research and development
    
    
    1,085
    
    
    
    1,916
    
    
    
    2,447Selling, general and administrative
    
    
    1,559
    
    
    
    1,258
    
    
    
    1,339Restructuring
    
    
    609
    
    
    
    40
    
    
    
    112Discontinued operations
    
    
    60
    
    
    
    245
    
    
    
    173Share based compensation expense before income taxes
    
    
    3,391
    
    
    
    3,502
    
    
    
    4,284Related income tax benefits
    
    
    (88
    )
    
    
    (152
    )
    
    
    Share based compensation, net of income taxes
    
    $
    3,303
    
    
    $
    3,350
    
    
    $
    4,284
 15. NET PRODUCT REVENUE
  (In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Visudyne sales by Novartis
    
    $
    141,865
    
    
    $
    214,857
    
    
    $
    353,759Less: Marketing and distribution costs
    
    
    (62,213
    )
    
    
    (103,903
    )
    
    
    (132,669
    )Less: Inventory costs
    
    
    (11,153
    )
    
    
    (17,508
    )
    
    
    (18,275
    )Less: Royalties to third parties
    
    
    (3,040
    )
    
    
    (4,546
    )
    
    
    (7,545
    )$
    65,459
    
    
    $
    88,900
    
    
    $
    195,270QLTs 50% share of Novartis net proceeds
from Visudyne sales
    
    $
    32,730
    
    
    $
    44,450
    
    
    $
    97,635Add: Advance on inventory costs from
Novartis
    
    
    7,142
    
    
    
    11,332
    
    
    
    15,063Add: Royalties reimbursed to QLT
    
    
    3,090
    
    
    
    4,516
    
    
    
    7,622Add: Other costs reimbursed to QLT
    
    
    5,343
    
    
    
    7,432
    
    
    
    9,046Revenue from Visudyne sales
    
    $
    48,305
    
    
    $
    67,730
    
    
    $
    129,366Net product revenue from Eligard
    
    
    37,877
    
    
    
    28,127
    
    
    
    22,493$
    86,182
    
    
    $
    95,857
    
    
    $
    151,859
  16. RESTRUCTURING CHARGE
  100




---



##### 



Employee
    
    
    
    
    
    ContractTermination
    
    Asset
    
    Termination(In thousands of U. S. dollars)
    
    costs(1)
    
    Write-downs
    
    costs
    
    TotalBalance at December 31, 2007(2)
    
    $
    153
    
    
    $
    
    
    
    $
    
    
    
    $
    153Restructuring charge
    
    
    8,284
    
    
    
    1,539
    
    
    
    339
    
    
    
    10,162Foreign exchange
    
    
    (132
    )
    
    
    
    
    
    
    
    
    
    
    (132
    )Cash payments
    
    
    (6,970
    )
    
    
    
    
    
    
    (339
    )
    
    
    (7,309
    )Non-cash portion
    
    
    (609
    )
    
    
    (1,539
    )
    
    
    
    
    
    
    (2,148
    )Balance at December 31, 2008
    
    $
    726
    
    
    $
    
    
    
    $
    
    
    
    $
    726
 (1)
    
    Costs include severance, termination benefits, and outplacement support. Non-cash portion of
employee termination costs relates to stock-based compensation.(2)
    
    Opening balance represents remaining balance from previous restructurings. 17. INCOME TAXES
 Uncertainty in income taxes
 Accounting for Uncertainty in Income Taxes
  (In thousands of U.S. dollars)Balance at January 1, 2008
    
    $
    2,070Increases related to current year tax positions
    
    
    110Changes in tax positions of a prior period
    
    
    (147
    )Settlements
    
    
    Lapse of Statute of Limitations
    
    
    Balance at December 31, 2008
    
    $
    2,033
     101




---



##### 



Provision for (recovery of) income taxes
  (In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Canada
    
    $
    9,825
    
    
    $
    (121,947
    )
    
    $
    44,782United States and other
    
    
    14,654
    
    
    
    (14,026
    )
    
    
    (102,706
    )Income (loss) before income
taxes and discontinued
operations
    
    $
    24,479
    
    
    $
    (135,973
    )
    
    $
    (57,924
    )
  (In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Canada
    
    $
    2,058
    
    
    $
    (40,517
    )
    
    $
    9,130United States and other
    
    
    7,469
    
    
    
    7,870
    
    
    
    6,004Provision for (recovery of) income taxes
    
    $
    9,527
    
    
    $
    (32,647
    )
    
    $
    15,134
 (In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Recovery of current and deferred income taxes
    
    $
    47,945
    
    
    $
    (32,864
    )
    
    $
    (29,196
    )Increase (decrease) in valuation allowance
    
    
    (38,418
    )
    
    
    217
    
    
    
    44,330Provision for (recovery of) income taxes
    
    $
    9,527
    
    
    $
    (32,647
    )
    
    $
    15,134
 (In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Current income taxes
    
    $
    9,287
    
    
    $
    (37,579
    )
    
    $
    25,526Deferred income taxes
    
    
    240
    
    
    
    4,932
    
    
    
    (10,392
    )Provision for (recovery of) income taxes
    
    $
    9,527
    
    
    $
    (32,647
    )
    
    $
    15,134
 102




---



##### 



(In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Income (loss) before income taxes and
discontinued operations
    
    $
    24,479
    
    
    $
    (135,973
    )
    
    $
    (57,924
    )Canadian statutory tax rates
    
    
    31.00
    %
    
    
    34.12
    %
    
    
    34.12
    %Expected income tax (recovery) provision
    
    $
    7,589
    
    
    $
    (46,394
    )
    
    $
    (19,764
    )Purchased in-process research and development
    
    
    
    
    
    
    17,074
    
    
    
    Net increase in valuation allowance
    
    
    879
    
    
    
    217
    
    
    
    44,330Provincial tax credits on patent sourced
income
    
    
    
    
    
    
    
    
    
    
    (4,582
    )Non-taxable portion of capital gains
    
    
    (1,694
    )
    
    
    
    
    
    
    Tax cost of undistributed earnings of
affiliates
    
    
    1,613
    
    
    
    
    
    
    
    Foreign tax rate differences
    
    
    1,562
    
    
    
    (1,485
    )
    
    
    (3,013
    )Investment tax credits
    
    
    (963
    )
    
    
    (2,532
    )
    
    
    (1,685
    )Recovery of prior year taxes
    
    
    
    
    
    
    
    
    
    
    (1,576
    )Prior year tax rate differences in loss
carryback years
    
    
    
    
    
    
    2,328
    
    
    
    Realization of outside basis difference in
foreign entity
    
    
    
    
    
    
    (3,184
    )
    
    
    Stock options
    
    
    876
    
    
    
    1,129
    
    
    
    1,318Future tax rate reductions
    
    
    
    
    
    
    519
    
    
    
    481Other
    
    
    (335
    )
    
    
    (319
    )
    
    
    (375
    )Provision for (recovery of) income taxes
    
    $
    9,527
    
    
    $
    (32,647
    )
    
    $
    15,134
 103




---



##### 



Deferred tax assets and liabilities
  (In thousands of U.S. dollars)
    
    2008
    
    2007Deferred tax assetsNet operating loss carryforwards
    
    $
    37,817
    
    
    $
    92,698Research & development tax credit carryforwards
    
    
    8,907
    
    
    
    10,430Capital loss carryforwards
    
    
    31
    
    
    
    11,709Depreciable and amortizable assets
    
    
    4,912
    
    
    
    6,509Provincial tax credits carryforwards on patent sourced income
    
    
    
    
    
    
    5,783Provision for non-completion of product inventory
    
    
    1,837
    
    
    
    2,294Deferred revenue
    
    
    1,117
    
    
    
    1,633Other temporary differences
    
    
    811
    
    
    
    988Total gross deferred income tax assets
    
    $
    55,432
    
    
    $
    132,044Less: valuation allowance
    
    
    (13,291
    )
    
    
    (105,611
    )Total deferred income tax assets
    
    $
    42,141
    
    
    $
    26,433Less: current portion
    
    
    (9,835
    )
    
    
    (19,392
    )Net long-term portion of deferred income tax assets
    
    $
    32,306
    
    
    $
    7,041Deferred tax liabilitiesTax cost of undistributed earnings
    
    $
    (1,619
    )
    
    $
    Capital gains reserve
    
    
    (471
    )
    
    
    Other temporary differences
    
    
    
    
    
    
    (57
    )Unrealized foreign exchange gains
    
    
    
    
    
    
    (11,234
    )Total deferred income tax liabilities
    
    $
    (2,090
    )
    
    $
    (11,291
    )Net deferred income tax assets
    
    $
    40,051
    
    
    $
    15,142
   104




---



##### 



18. DISCONTINUED OPERATIONS
   ,
    105




---



##### 



Accounting for Leases Accounting for Sales of Real
Estate
  (In thousands of U.S. dollars)
    
    December 31, 2008
    
    December 31, 2007Building
    
    $
    
    
    
    $
    29,735Land
    
    
    
    
    
    
    7,187Equipment
    
    
    
    
    
    
    5,810$
    
    
    
    $
    42,732
  (In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Net revenue
    
    $
    
    
    
    $
    
    
    
    $
    15,077Write-down of assets held for sale
    
    
    
    
    
    
    
    
    
    
    (8,592
    )Operating pre-tax (loss) income
    
    
    (10,219
    )
    
    
    (10,599
    )
    
    
    (27,778
    )Gain (loss) on sale of discontinued operations
    
    
    134,874
    
    
    
    
    
    
    
    (10,488
    )Pre-tax income (loss)
    
    
    124,655
    
    
    
    (10,599
    )
    
    
    (38,266
    )Income tax (provision) recovery*
    
    
    (59,436
    )
    
    
    3,928
    
    
    
    9,719Income tax recovery**
    
    
    54,720
    
    
    
    
    
    
    
    Net income (loss) from discontinued operations
    
    $
    119,939
    
    
    $
    (6,671
    )
    
    $
    (28,547
    )
 *
    
    In 2008, the income tax provision relating to the gain on sale of Aczone discontinued operations
(before application of loss carryforwards) was $55.2 million. Income tax provision relating to the
gain on sale of Atrigel discontinued operations (before application of loss carryforwards) was $8.1
million.**
    
    During year ended December 31, 2008, we released our valuation allowance on substantially all
of QLT USAs tax assets. (See Note 17  Income Taxes.) 106




---



##### 



19. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
    (1)
   Carrying Value
    
    Fair Value Measurements at December 31, 2008December 31, 2008
    
    Level 1
    
    Level 2
    
    Level 3Assets:Cash and cash equivalents
    
    $
    165,395
    
    
    $
    165,395
    
    
    $
    
    
    
    $
    Restricted cash
    
    
    124,578
    
    
    
    124,578
    
    
    
    
    
    
    
    Forward currency contracts
    
    
    3,542
    
    
    
    
    
    
    
    3,542
    
    
    
    Total
    
    $
    293,515
    
    
    $
    289,973
    
    
    $
    3,542
    
    
    $
    Liabilities:$
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 .
 Maturity Period
    
    Quantity (millions)
    
    PriceCanadian / U.S. dollar
forward contract to buy USD
    
    
    2009
    
    
    USD 28.0
    
    1.0661 per USD
 107




---



##### 



(1)
    
    Our foreign currency forward contracts are valued using an income approach
based on the present value of the forward rate less the contract rate multiplied by the notional
amount.    20. COMMITMENTS AND GUARANTEES
  (In thousands of U.S. dollars)Year ending December 31,2009
    
    $
    1,0892010
    
    
    1,0852011
    
    
    1,0482012
    
    
    9752013
    
    
    5452014 and thereafter
    
    
    Total
    
    $
    4,742
   21. SEGMENT INFORMATION
  108




---



##### 



(In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Visudyne
    
    $
    48,305
    
    
    $
    67,730
    
    
    $
    129,366Eligard
    
    
    71,520
    
    
    
    58,489
    
    
    
    43,592Licensing, milestones and other
    
    
    4,315
    
    
    
    1,387
    
    
    
    1,178$
    124,140
    
    
    $
    127,606
    
    
    $
    174,136
  (1)
 (In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006U.S.
    
    $
    44,372
    
    
    $
    42,456
    
    
    $
    53,823Europe
    
    
    53,947
    
    
    
    57,274
    
    
    
    83,321Canada
    
    
    4,556
    
    
    
    14,703
    
    
    
    17,438Japan
    
    
    8,746
    
    
    
    6,278
    
    
    
    5,768Other
    
    
    12,519
    
    
    
    6,895
    
    
    
    13,786$
    124,140
    
    
    $
    127,606
    
    
    $
    174,136
  (In thousands of U.S. dollars)
    
    2008
    
    2007Canada
    
    $
    2,799
    
    
    $
    8,723U.S.
    
    
    385
    
    
    
    1,294$
    3,184
    
    
    $
    10,017
 (1)
    
    Revenues are attributable to a geographic segment based on the location of: (a) the customer,
for net revenue and royalties; and (b) the head office of the contractor, in the case of revenues
from contract research and development and collaborative arrangements.   (In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2006Novartis AG
    
    $
    48,306
    
    
    $
    67,731
    
    
    $
    129,366Sanofi
    
    
    27,777
    
    
    
    31,994
    
    
    
    28,769MediGene
    
    
    39,995
    
    
    
    21,762
    
    
    
    12,680
 22. CONTINGENCIES
  109




---



##### 



(a) Eligard Patent Litigation
       (b) Patent Litigation with MEEI; Litigation with MGH
  110




---



##### 



111




---



##### 



Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Managements Report on Internal Control over Financial Reporting
    112




---



##### 



REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 To the Board of Directors and Shareholders of
 QLT Inc.
 Internal ControlIntegrated
Framework
    Internal
ControlIntegrated Framework
  /s/ DELOITTE & TOUCHE LLP
 Independent Registered Chartered Accountants
 
 113




---



##### 



Item 9B.
    
    OTHER INFORMATION
  114




---



##### 



PART III
  
 Item 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   OUR EXECUTIVE OFFICERS
  Name
    
    Age
    
    PositionRobert L. Butchofsky
    
    
    47
    
    
    President and Chief Executive OfficerCameron R. Nelson
    
    
    43
    
    
    Vice President, Finance and Chief Financial OfficerLinda M. Lupini
    
    
    49
    
    
    Senior Vice President, Human Resources and Organizational DevelopmentAlexander R. Lussow
    
    
    46
    
    
    Vice President, Business Development
 
 Item 11.
    
    EXECUTIVE COMPENSATION
  
 Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Equity Compensation Plan Information
 115




---



##### 



(a)
    
    
    (b)
    
    
    (c)Number of securitiesremaining available forNumber of securities
    
    
    
    
    
    
    future issuance underto be issued upon
    
    
    Weighted average
    
    
    equity compensationexercise of
    
    
    exercise price of
    
    
    plans (excludingoutstanding options,
    
    
    outstanding options,
    
    
    securities reflected inPLAN CATEGORY
    
    warrants and rights
    
    
    warrants and rights
    
    
    column (a))Equity compensation
plans approved by
security holders
    
    
    5,086,487
    (1)
    
    CAD $7.95
    
    
    1,544,695Equity compensation
plans approved by
security holders
    
    
    255,207
    (1)
    
    USD $9.52
    
    
    5,002,285Total
    
    
    5,341,694
    
    
    
    
    
    
    
    6,546,980
 
 (1)
    
    We currently maintain two equity compensation plans that have been approved by
shareholders which provide for the issuance of common stock to employees, officers and directors.
These two equity compensation plans are designated as the 2000 Incentive Stock Option Plan and the
2000 Atrix Performance Stock Option Plan.  
 Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  116




---



##### 



PART IV
 
 Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Financial Statements
 (i)
    
    The following financial statement documents are included as part of Item 8 to this
Form 10-K.Report of Independent Registered Chartered Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders Equity
Notes to the Consolidated Financial Statements(ii)
    
    Schedules required by Article 12 of Regulation S-X:Except for Schedule II  Valuation and Qualifying Accounts, all other schedules have been
omitted because they are not applicable or not required, or because the required
information is included in the consolidated financial statements or notes thereto.Schedule II  Valuation and Qualifying Accounts for the Years ended December 31, 2008,
2007 and 2006.Provision for non-completion of product inventory(In thousands of U.S. dollars)
 Additions
    
    Charged /Balance at
    
    charged to
    
    (credited) to
    
    Write-offsbeginning of
    
    costs and
    
    other
    
    and provision
    
    Balance atYear
    
    year
    
    expenses
    
    accounts(1)
    
    reduction
    
    end of year2008
    
    $
    4,613
    
    
    $
    
    
    
    $
    (417
    )
    
    $
    (461
    )
    
    $
    3,7352007
    
    
    5,112
    
    
    
    1,367
    
    
    
    648
    
    
    
    (2,514
    )
    
    
    4,6132006
    
    
    3,828
    
    
    
    2,737
    
    
    
    1
    
    
    
    (1,454
    )
    
    
    5,112
 
  Reserve for inventory obsolescence  (In thousands of U.S. dollars)
 Additions
    
    Charged /Balance at
    
    charged to
    
    (credited) to
    
    Write-offsbeginning of
    
    costs and
    
    other
    
    and provision
    
    Balance atYear
    
    year
    
    expenses
    
    accounts(1)
    
    reduction
    
    end of year2008
    
    $
    3,020
    
    
    $
    
    
    
    
    (549
    )
    
    $
    
    
    
    $
    2,4712007
    
    
    
    
    
    
    3,074
    
    
    
    (54
    )
    
    
    
    
    
    
    3,0202006
    
    
    1,452
    
    
    
    1,924
    
    
    
    
    
    
    
    (3,376
    )
    
    
    
 
  Allowance for doubtful accounts  (In thousands of U.S. dollars)
 Additions chargedBalance at
    
    / (credited) to
    
    Write-offs and
    
    Balance at endYear
    
    beginning of year
    
    costs and expenses
    
    provision reduction
    
    of year2008
    
    $
    125
    
    
    $
    (11
    )
    
    $
    (114
    )
    
    $
    2007
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    1252006
    
    
    673
    
    
    
    62
    
    
    
    (610
    )
    
    
    125
 117




---



##### 



Deferred tax asset valuation allowance  (In thousands of U.S. dollars)
 Additions chargedBalance at
    
    to costs and
    
    Write-offs and
    
    Balance at endYear
    
    beginning of year
    
    expenses
    
    provision reduction
    
    of year2008
    
    $
    105,611
    
    
    $
    7,260
    
    
    $
    (99,580
    )
    
    $
    13,2912007
    
    
    106,690
    
    
    
    4,236
    
    
    
    (5,315
    )
    
    
    105,6112006
    
    
    58,771
    
    
    
    49,731
    
    
    
    (1,812
    )
    
    
    106,690
 Exhibits
  118




---



##### 



SIGNATURES
   QLT INC.By:
    /s/ Robert L. ButchofskyRobert L. Butchofsky, President and Chief Executive Officer(Principal Executive Officer)By:
    /s/ Cameron R. NelsonCameron R. Nelson, Vice President, Finance and Chief Financial Officer(Principal Financial and Accounting Officer) 119




---



##### 



POWER OF ATTORNEY
    Signatures
    
    Title
    
    Date/s/ Robert L. Butchofsky

Robert L. Butchofsky
    
    President, Chief Executive Officer and Director
(Principal Executive Officer)
    
    March 5, 2009/s/ Cameron R. Nelson

Cameron R. Nelson
    
    Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    March 5, 2009/s/ C. Boyd Clarke

C. Boyd Clarke
    
    Chairman of the Board of Directors and Director
    
    March 5, 2009/s/ Bruce L.A. Carter

Bruce L.A. Carter
    
    Director
    
    March 5, 2009/s/ Peter A. Crossgrove

Peter A. Crossgrove
    
    Director
    
    March 5, 2009/s/ Ian J. Massey

Ian J. Massey
    
    Director
    
    March 5, 2009/s/ Jack L. Wood

Jack L. Wood
    
    Director
    
    March 5, 2009
 120




---



##### 



Exhibit Index
  Exhibit
    
    Description
    
    Location2.1
    
    Asset Purchase Agreement, dated December 20, 2006,
    
    Exhibit 2.1 to the Companys Annual Report on Formby and among Tolmar, Inc., Dillford Company S.A. and
    
    10-K  for the year-ended December 31, 2006.QLT USA, Inc. (1)2.2
    
    Agreement and Plan of Merger by and among QLT Inc,
    
    Annex A to the Companys Joint ProxyAspen Acquisition Corp. and Atrix Laboratories, Inc.
    
    Statement/Prospectus on Form S-4 dated October 14,dated as of June 14, 2004.
    
    2004.2.3
    
    Agreement and Plan of Merger dated October 8, 2007,
    
    Exhibit 2.1 to the Companys Current Report on Form 8-Kby and among the Company, 3088923, Inc., ForSight
    
    dated October 8, 2007 and filed with the Commission onNewco II, Inc. and the Stockholders Representatives
    
    October 11, 2007.named therein.(1)2.4
    
    Purchase Agreement, dated as of June 6, 2008, by and
    
    Exhibit 2.1 to the Companys Current Report on Form 8-Kbetween Allergan Sales, LLC and QLT USA, Inc.
    
    dated June 6, 2008 and filed with the Commission on June10, 2008.3.0
    
    Articles
    
    Exhibit 3.2 to the Companys Current Report on Form 8-Kdated May 25, 2005 and filed with the Commission on June1, 2005.4.1
    
    Shareholder Rights Plan Agreement, as amended and
    
    Exhibit 41 to the Companys Current Report onrestated, dated as of April 8, 2005, between QLT Inc.
    
    Form 8-K dated April 8, 2005 and filed with theand ComputerShare Trust Company of Canada.
    
    Commission on April 13, 2005.4.2
    
    Registration Rights Agreement, as amended and restated,
    
    Exhibit 4.2 to the Companys Quarterly Reportdated as of December 17, 2004 by and between QLT Inc.,
    
    on Form 10-Q for the quarter ended March 31,Elan International Services, Ltd., and Elan
    
    2005.Pharmaceutical Investments III, Ltd.10.1
    
    Agreement, dated April 8, 1982, between Dr. Julia Levy,
    
    Exhibit to the Companys Registration StatementQuadra Logic Technologies Inc. and the University of
    
    on Form F-1 (File No. 33-31222) filed with theBritish Columbia.
    
    Commission on September 25, 1989.10.2
    
    Agreement, dated January 15, 1988, between Dr. David
    
    Exhibit to the Companys Annual Report on FormDolphin, Quadra Logic Technologies Inc. and the
    
    20-F for the year ended December 31, 1988.University of British Columbia.10.3
    
    Royalty Adjustment and Stock Option Agreement dated
    
    Exhibit to the Companys Amendment No. 1 to theAugust 10, 1989, between Quadra Logic Technologies Inc.
    
    Registration Statement on Form F-1 datedand Dr. David Dolphin.
    
    November 6, 1989.10.4
    
    Royalty Agreement, dated December 15, 1987, between
    
    Exhibit to the Companys Amendment No. 1 to theQuadra Logic Technologies Inc. and Dr. David Dolphin.
    
    Registration Statement on Form F-1 datedNovember 6, 1989.10.5
    
    1998 QLT Incentive Stock Option Plan.
    
    Exhibit 10.68 to the Companys Annual Report onForm 10-K for the year ended December 31, 1998.10.6*
    
    2000 QLT Incentive Stock Option Plan (as amended in
    
    Exhibit to the Companys Registration Statement2002); (formerly numbered 10.70).
    
    on Form S-8 filed with the Commission onSeptember 20, 2002.10.7*
    
    Employment Agreement dated December 18, 2001
    
    Exhibit 10.77 to the Companys Annual Report on
 121




---



##### 



Exhibit
    
    Description
    
    Locationbetween QLT Inc. and Paul J. Hastings.
    
    Form 10-K for the year ended December 31, 2002.10.8*
    
    Employment Agreement dated May 19, 2000 between QLT
    
    Exhibit 10.80 to the Companys Annual Report onInc. and Alain Curaudeau.
    
    Form 10-K for the year ended December 31, 2002.10.9
    
    PDT Product Development, Manufacturing and Distribution
    
    Exhibit to the Companys Annual Report on FormAgreement, dated July 1, 1994, between Quadra Logic
    
    10-K for the year ended December 31, 1995.Technologies Inc. and CIBA Vision AG, Hettlingen (nowNovartis Pharma AG).10.10
    
    BPD-MA Verteporfin Supply Agreement, dated March 12,
    
    Exhibit 10.54 to the Companys Annual Report on1999 between QLT PhotoTherapeutics Inc. and Parkedale
    
    Form 10-K for the year ended December 31, 1998.Pharmaceuticals, Inc. (1)10.11
    
    BPD-MA Presome Supply Agreement,
dated February 6,
    
    Exhibit 10.55 to the Companys Annual Report on2008 between QLT PhotoTherapeutics Inc. and Nippon
    
    Form 10-K for the year ended December 31, 1998.Fine Chemical Co., Ltd. (1)10.12
    
    BPD-MA Supply Agreement, dated December 11, 1998,
    
    Exhibit 10.56 to the Companys Annual Report onbetween QLT PhotoTherapeutics Inc. and Raylo Chemicals
    
    Form 10-K for the year ended December 31, 1998.Limited. (1)10.13
    
    License Agreement, dated December 8, 1998, between QLT
    
    Exhibit 10.63 to the Companys Annual Report onPhotoTherapeutics Inc. and The General Hospital
    
    Form 10-K for the year ended December 31, 1998.Corporation. (1)10.14
    
    Amending Agreement to PDT Product Development,
    
    Exhibit 10.74 to the Companys Quarterly ReportManufacturing and Distribution Agreement dated as of
    
    on Form 10-Q for the quarter ended SeptemberJuly 23, 2001 between Novartis Ophthalmics AG and QLT
    
    30, 2002.Inc. (1)10.15
    
    Amending Agreement to PDT Product Development,
    
    Exhibit 10.77 to the Companys Quarterly ReportManufacturing and Distribution Agreement entered into
    
    on Form 10-Q for the quarter ended June 30,July 22, 2003 between Novartis Ophthalmics AG (now a
    
    2003.division of Novartis Pharma AG) and QLT Inc.10.16
    
    Agreement and Plan of Merger by and among QLT Inc,
    
    See Exhibit 2.2 above.Aspen Acquisition Corp. and Atrix Laboratories, Inc.dated as of June 14, 2004.10.17
    
    License and Royalty Agreement, dated as of August 8,
    
    Exhibit 99.3 to Atrix Laboratories, Inc.s2000 between Atrix Laboratories, Inc. and Pfizer Inc.
    
    Current Report on Form 8-K dated August 8, 2000and filed with the Commission on September 7,2000.10.18
    
    Collaboration, Development and Supply Agreement dated
    
    Exhibit 10.13 to Atrix Laboratories, Inc.sas of August 28, 2000 between Atrix Laboratories, Inc.
    
    Quarterly Report on Form 10-Q for the quarterand Sandoz, Inc. (formerly Geneva Pharmaceuticals,
    
    ended September 30, 2000.Inc.)10.19
    
    Collaboration, License and Supply Agreement dated as of
    
    Exhibit 10.19 to the Companys Annual Report onDecember 8, 2000 between Atrix Laboratories, Inc. and
    
    Form 10-K for the year ended December 31, 2006.Sanofi-Synthelabo Inc. as amended through February 15,2007. (1)10.20
    
    Collaboration, License and Supply Agreement, dated as
    
    Exhibit 10.20 to the Companys Annual Report onof April 4, 2001, between Atrix Laboratories, Inc. and
    
    Form 10-K for the year ended December 31, 2006.MediGene as amended through May 17, 2006. (1)10.21*
    
    Separation Letter Agreement with Michael J. Doty.
    
    Exhibit 10.1 to the Companys Current Report onForm 8-K dated April 15, 2005 and filed withthe Commission on April 21, 2005.
 122




---



##### 



Exhibit
    
    Description
    
    Location10.22*
    
    QLT Inc. 2005 Cash Incentive Plan.
    
    Exhibit 10.01 to the Companys Current Reporton Form 8-K dated May 10, 2005 and filed withthe Commission on May 16, 2005.10.23*
    
    Deferred Share Unit Plan For Non-Employee Directors.
    
    Exhibit 10.32 to the Companys Quarterly Reporton Form 10-Q for the quarter ended June 30,2005.10.24*
    
    Change Of Control Letter Agreement between QLT Inc. and
    
    Exhibit 10.34 to the Companys Quarterly ReportCameron Nelson.
    
    on Form 10-Q for the quarter ended June 30,2005.10.25*
    
    Letter Agreement dated September 23, 2005 between QLT
    
    Exhibit 10.1 to the Companys Current Report onInc. and Paul J. Hastings.
    
    Form 8-K dated September 23, 2005 and filedwith the Commission on September 26, 2005.10.26*
    
    Employment Agreement dated September 26, 2005 between
    
    Exhibit 10.35 to the Companys Quarterly ReportQLT Inc. and Robert L. Butchofsky.
    
    on Form 10-Q for the quarter ended September30, 2005.10.27*
    
    Change of control letter agreement dated September 26,
    
    Exhibit 10.36 to the Companys Quarterly Report2005 for Robert L. Butchofsky.
    
    on Form 10-Q for the quarter ended September30, 2005.10.28*
    
    Employment Agreement dated November
8, 2005 between QLT Inc. and Cameron Nelson.
    
    Exhibit 10.37 to the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.10.29*
    
    Consultancy Agreement, dated December 7, 2005, between
    
    Exhibit 10.40 to the Companys Annual Report onQLT Inc. and Dr. Mohammad Azab.
    
    Form 10-K for the year ended December 31, 2005.10.30*
    
    Employment Agreement dated December
9, 2005 between QLT USA, Inc. and Michael R. Duncan.
    
    Exhibit 10.41 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2005.10.31*
    
    Change of Control Letter Agreement dated December 9,
    
    Exhibit 10.42 to the Companys Annual Report on2005 between QLT USA, Inc. and Michael R. Duncan.
    
    Form 10-K for the year ended December 31, 2005.10.32*
    
    Form of Stock Option Agreement for stock option grants
    
    Exhibit 10.43 to the Company Quarterly Reportto senior employees and executive officers.
    
    on Form 10-Q for the quarter ended June 30,2006.10.33*
    
    Employment Agreement dated May 31, 2006 between QLT
    
    Exhibit 10.44 to the Companys Quarterly ReportInc. and Peter J. OCallaghan.
    
    on Form 10-Q for the quarter ended June 30,2006.10.34*
    
    Change of Control Agreement dated May 31, 2006 between
    
    Exhibit 10.45 to the Companys Quarterly ReportQLT Inc. and Peter J. OCallaghan.
    
    on Form 10-Q for the quarter ended June 30,2006.10.35
    
    Settlement, Release and Patent License dated February
    
    Exhibit 10.35 to the Companys Annual Report on9, 2007 by and among Takeda Pharmaceutical Company
    
    Form 10-K for the year ended December 31, 2006.Limited, Wako Pure Chemical Industries, Ltd., TAPPharmaceutical Products Inc., Abbott Laboratories,Limited  Laboratories Abbott, Limited, QLT USA, Inc.,and Sanofi-Synthelabo, Inc.10.36
    
    Eligard Manufacturing and Supply Agreement, dated
    
    Exhibit 10.36 to the Companys Annual Report onDecember 22, 2006, between Tolmar, Inc. and QLT
    
    Form 10-K for the year ended December 31,
 123




---



##### 



Exhibit
    
    Description
    
    LocationUSA, Inc. (1)
    
    2006.10.37
    
    Amended and Restated Contribution Agreement, dated
    
    Exhibit 10.37 to the Companys Annual Report onFebruary 9, 2007, between Sanofi-Synthelabo, Inc. and
    
    Form 10-K for the year ended December 31, 2006.QLT USA, Inc. (1)10.38
    
    Settlement Agreement dated March 2, 2007, by and
    
    Exhibit 10.4 to the Companys Quarterly Reportbetween the Company and Massachusetts Eye and Ear
    
    on Form 10-Q for the quarter ended March 31,Infirmary.(1)
    
    2007.10.39
    
    Separation Letter Agreement with Alain Curaudeau.
    
    Exhibit 10.1 to the Companys Current Report onForm 8-K dated January 18, 2008 and filed withthe Commission on January 25, 2008.10.40
    
    Amended and Restated License
Agreement, dated December 14, 2007 between QLT Inc. and the University of British Columbia.(1)
    
    Exhibit 10.40 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2007.10.41*
    
    2007 Cash Incentive Bonus Plan for Executive Officers.
    
    Item 1.01 of the Companys Current Report onForm 8-K dated February 27, 2007 and filed withthe Commission on March 3, 2007.10.42*
    
    2007 Cash Incentive Compensation Structure for
    
    Item 5.02 of the Companys Current Report onExecutive Officers.
    
    Form 8-K dated May 17, 2007 and filed with theCommission on May 23, 2007.10.43*
    
    2007 Base Salary for Chief Executive Officer.
    
    Item 5.02 of the Companys Current Report onForm 8-K dated April 16, 2007 and filed withthe Commission on April 20, 2007.10.44
    
    QLT Guarantee dated June 6, 2008.
    
    Exhibit 10.44 to the Companys Current Reporton Form 8-K dated June 6, 2008 and filed withthe Commission on June 10, 2008.10.45
    
    Sale and Purchase Agreement dated May 15, 2008 by and
    
    Exhibit 10.45 to the Companys Quarterly Reportamong QLT Inc., 560677 B.C. Ltd., 630321 B.C. Ltd. and
    
    on Form 10-Q for the quarter ended June 30,Discovery Parks Holdings Inc. as amended by each of: an
    
    2008.Amending Agreement dated July 4, 2008 by and among QLTInc., 560677 B.C. Ltd., 630321 B.C. Ltd. and DiscoveryParks Holdings Inc., an Amended and Restated Sale andPurchase Agreement dated July 11, 2008 by and among QLTInc., 560677 B.C. Ltd., 630321 B.C. Ltd. and DiscoveryParks Holdings Inc., a Third Amending Agreement datedJuly 16, 2008 by and among QLT Inc., 560677 B.C. Ltd.,630321 B.C. Ltd. and Discovery Parks Holdings Inc., aFourth Amending Agreement dated July 18, 2008 by andamong QLT Inc., 560677 B.C. Ltd., 630321 B.C. Ltd. andDiscovery Parks Holdings Inc., a Fifth AmendingAgreement dated July 23, 2008 by and among QLT Inc.,560677 B.C. Ltd., 630321 B.C. Ltd. and Discovery ParksHoldings Inc., a Sixth Amending Agreement dated July25, 2008 by and among QLT Inc., 560677 B.C. Ltd.,630321 B.C. Ltd. and Discovery Parks Holdings Inc., aSecond Amended and Restated Sale and Purchase Agreementdated July 30, 2008 by and among QLT Inc., 560677 B.C.Ltd., 630321 B.C. Ltd. and Discovery Parks HoldingsInc. and an Eighth Amending Agreement dated August 7,2008 by and among QLT Inc., 560677 B.C. Ltd., 630321B.C. Ltd. and Discovery Parks
 124




---



##### 



Exhibit
    
    Description
    
    LocationHoldings Ltd.10.46
    
    License Agreement dated August 25, 2008 by and between
    
    Exhibit 10.1 to the Companys Amended CurrentQLT USA, Inc. and Reckitt Benckiser Pharmaceuticals
    
    Report on Form 8-K/A dated August 25, 2008 andInc. (1)
    
    filed with the Commission on September 3, 2008.10.47
    
    Amendment No. 8 to BPD-MA Presome Supply Agreement
    
    Filed herewith.dated December 29, 2008 by and between QLT Inc. andNippon Fine Chemical Co., Ltd. (1)11
    
    Statement re: computation of per share earnings.
    
    Filed herewith.21
    
    Subsidiaries of QLT Inc.
    
    Filed herewith.23
    
    Consent of Deloitte & Touche LLP.
    
    Filed herewith.31.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as
    
    Filed herewith.adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 2002: Robert L. Butchofsky, President and ChiefExecutive Officer.31.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as
    
    Filed herewith.adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 2002: Cameron R. Nelson, Vice President,Finance, and Chief Financial Officer.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as
    
    Filed herewith.adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002: Robert L. Butchofsky, President and ChiefExecutive Officer.32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as
    
    Filed herewith.adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002: Cameron R. Nelson, Vice President,Finance, and Chief Financial Officer.
 Notes:*
    
    Denotes executive compensation plans or arrangements.(1)
    
    Certain portions of this exhibit have been omitted and filed separately with the Commission
pursuant to a grant of confidential treatment under Rule 24b-2 promulgated under the
Securities Exchange Act of 1934, as amended. 125