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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, 2007
 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
    
    N/A(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)887 Great Northern Way, Vancouver, B.C., Canada
    
    V5T 4T5(Address of principal executive offices)
    
    (Zip Code)
  Common Shares, without par value
Common Share Purchase Rights
  
 o þ
 o þ
 þ o
 o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(do not check if a smaller reporting company)
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Note regarding references to QLT
  Note regarding Currency and Accounting Standards
   Note regarding Exchange Rates
  2007
    
    2006
    
    2005
    
    2004
    
    2003High
    
    $
    1.1852
    
    
    $
    1.1726
    
    
    $
    1.2703
    
    
    $
    1.3970
    
    
    $
    1.5750Low
    
    
    0.9168
    
    
    
    1.0989
    
    
    
    1.1507
    
    
    
    1.1775
    
    
    
    1.2923Average
    
    
    1.0734
    
    
    
    1.1340
    
    
    
    1.2115
    
    
    
    1.3017
    
    
    
    1.4008Period End
    
    
    0.9881
    
    
    
    1.1652
    
    
    
    1.1656
    
    
    
    1.2034
    
    
    
    1.2923
 NOTICE REGARDING WEBSITE ACCESS TO COMPANY REPORTS
  2




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##### Table of Contents



QLT INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2007
   
 Item 1. Business
    
    
    5Overview
    
    
    5Our Approved Products
    
    
    11Our Products under Regulatory Review
    
    
    13Our Products in Development
    
    
    13Our Proprietary Technologies
    
    
    14Significant Collaborative Arrangements
    
    
    15Product Manufacturing
    
    
    17Financial Information about Segments and Geographic Areas
    
    
    18Supply of Medical Lasers Required for Visudyne Therapy
    
    
    18Patents, Trademarks and Proprietary Rights
    
    
    18Competition
    
    
    20Government Regulation
    
    
    21Third-Party Reimbursement
    
    
    24Liability and Product Recall
    
    
    24Research and Development
    
    
    24Human Resources
    
    
    24Item 1A. RISK FACTORS
    
    
    26Item 1B. UNRESOLVED STAFF COMMENTS
    
    
    38Item 2. PROPERTIES
    
    
    38Item 3. LEGAL PROCEEDINGS
    
    
    38Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    41Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    42Item 6. SELECTED FINANCIAL DATA
    
    
    46Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    48Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    72Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    72Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
    
    
    112Item 9A. CONTROLS AND PROCEDURES
    
    
    112Item 9B. OTHER INFORMATION
    
    
    112
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Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    113Item 11. EXECUTIVE COMPENSATION
    
    
    113Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
    
    
    113Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    114Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    114Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    115Amended and Restated Licence AgreementStatement Re: Computation of Per Share EarningsSubsidiaries of QLT Inc.Consent of Deloitte & Touche LLPSection 302 Certification - CEOSection 302 Certification - CFOSection 906 Certification - CEOSection 906 Certification - CFO
  4




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PART I
 
 Item 1. BUSINESS
 
 Overview
 ® ® ®
     ®
  Strategic Corporate Restructure
  5




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
    
    the sale of QLT USA, Inc. (QLT USA), our wholly owned U.S. subsidiary, whose primary
assets include the Eligard product line for prostate cancer, Aczone, a dermatology product for
the treatment of acne vulgaris, and the Atrigel drug delivery system, either in a single
transaction or a series of transactions;
 
    
    the sale of the land and building associated with and surrounding our corporate head office
in Vancouver; and
 
    
    the reduction in headcount of 115 employees with planned future reductions as assets are
divested.
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OUR APPROVED PRODUCTS
 Product/Indication
    
    Location(s)
    
    LicenseeVisudyne®Predominantly classic subfoveal choroidal 
neovascularization, or CNV, in wet age-related 
macular degeneration, or AMD
    
    Over 75 countries
including the U.S.,
Canada, Japan, Australia,
New Zealand and those of
the EU
    
    NovartisOccult with no classic subfoveal CNV in AMD
    
    Over 25 countries
including Japan,
Australia, New Zealand
and Switzerland
    
    NovartisMinimally Classic CNV in AMD
    
    Japan
    
    NovartisSubfoveal CNV due to pathologic myopia
    
    Over 60 countries
including the U.S.,
Canada, and those of the
EU
    
    NovartisPredominantly classic subfoveal CNV due to
presumed ocular histoplasmosis syndrome
    
    U.S.
    
    NovartisEligardâ 7.5-mg one-monthProstate cancer
    
    Over 30 countries, including the U.S.,
Canada, Australia, New Zealand, 26
European countries, India, Korea and a
number of Latin American countries
    
    Sanofi-Synthelabo, Hospira, MediGene/Astellas,
 Ranbaxy, HanAll,
TecnofarmaEligardâ 22.5-mg three-monthProstate cancer
    
    Over 30 countries, including
the U.S., Canada, Australia, New Zealand, 26
European countries, India, Korea and
a number of Latin America countries
    
    Sanofi-Synthelabo,
Hospira,
 MediGene/Astellas,
 Ranbaxy, HanAll,
TecnofarmaEligardâ 30.0-mg four-monthProstate cancer
    
    U.S., Canada, Australia, New Zealand,
India and Korea
    
    Sanofi-Synthelabo,
Hospira, Ranbaxy, HanAllEligardâ 45.0-mg six-month formulationProstate cancer
    
    U.S., Canada, Australia, New Zealand,
27 European countries, India and Korea
    
    Zealand, Sanofi-Synthelabo,
Hospira;
MediGene/Astellas,
Ranbaxy, HanAll
 7




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Product/Indication
    
    Location(s)
    
    LicenseeAczoneAcne vulgaris
    
    U.S., Canada
(Decision by the FDA whether to remove

the restriction currently on the
approved label is expected by the end
of March 2008.)
    
    No Licensee
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OUR PRODUCTS UNDER REGULATORY REVIEW
 Product/Indication
    
    Location(s)
    
    StatusEligard® 7.5-mg one-monthProstate Cancer
    
    Six countries
outside of North

America
    
    Marketing
authorization
application filedEligard® 22.5-mg three-monthProstate Cancer
    
    Five countries
outside of North 

America
    
    Marketing
authorization
application filedEligard® 30.0-mg four-monthProstate Cancer
    
    One country outside
of North 
America
    
    Marketing
authorization
application filedEligard® 45.0-mg six-monthProstate Cancer
    
    One country outside
of North 
America
    
    Marketing
authorization
application filed
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OUR PRODUCTS IN DEVELOPMENT
 Product/Indication
    
    Location(s)
    
    StatusPunctal PlugGlaucoma
    
    U.S.
    
    Plan to complete the
IND-enabling program in early
2008LemuteporfinAcne
    
    Canada
    
    Phase I/II studies ongoingVisudyneWet AMD
    
    U.S., Canada
    
    Visudyne followed by an anti-VEGF
drug either as bi-therapy or triple therapy
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Our Approved Products
 Visudyne®
  About Wet AMD
   Visudyne ® Approvals
 Predominantly Classic CNV in AMD
  Occult with no Classic CNV in AMD
  CNV due to Pathologic Myopia (PM)
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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
 ®
 Aczone
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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
 Expansion of Visudyne® Therapy
    Punctal Plug Drug Delivery System
  13




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Lemuteporfin
  
 Our Proprietary Technologies
 Photodynamic Therapy
    Atrigel® System for injectable sustained release drug delivery
   14




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
    
    Broad applicabilityThe Atrigel system is compatible with a broad range of
pharmaceutical compounds, including water soluble and insoluble compounds and high and low
molecular weight compounds, including peptides and proteins.
    
    Systemic drug deliveryThe Atrigel system can also be used to provide sustained drug
release into the systemic circulation.
    
    Customized continuous release and degradation ratesThe Atrigel system can be designed
to provide continuous release of incorporated pharmaceuticals over a targeted time period
thereby reducing the frequency of drug administration.
    
    BiodegradabilityThe Atrigel system will biodegrade and does not require removal when
the drug is depleted.
    
    Ease of applicationThe Atrigel system can be injected or inserted as flowable
compositions, such as solutions, gels, pastes, and putties, by means of ordinary needles
and syringes, or can be sprayed or painted onto tissues.
    
    SafetyAll current components of the Atrigel system are biocompatible and have
independently established safety and toxicity profiles.
 Solvent Microparticle System for topical drug delivery
  Punctal Plug Drug Delivery System
   
 Significant Collaborative Arrangements
 Novartis  PDT Product Development, Manufacturing and Distribution Agreement for Visudyne®
worldwide
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Sanofi-Synthelabo, Inc.  Marketing of Eligard® in the U.S. and Canada
    Medigene AG and Astellas  Marketing of Eligard® in Europe
    Other Eligard® marketing collaborations
  16




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ELIGARD ® MARKETING COLLABORATIONS
 Company
    
    TerritoryHan All Pharmaceutical Co.
    
    KoreaKey Oncologics
    
    South AfricaLuxembourg Pharmaceuticals, Ltd.
    
    IsraelHospira Australia Pty Ltd.
    
    Australia, New ZealandMediGene AG through its sublicensee, Astellas
    
    Albania, Andorra, Armenia,
Austria, Azerbaijan, Belarus,
Belgium, Bosnia and Herzegovina,
Bulgaria, Croatia, Cyprus, Czech
Republic, Denmark, Estonia,
Finland, France, Georgia,
Germany, Greece, Hungary,
Iceland, Ireland, Italy, Latvia,
Liechtenstein, Lithuania,
Luxembourg, Malta, Monaco,
Netherlands, Norway, Poland,
Portugal, Republic of Moldova,
Romania, Russian Federation, San
Marino, Slovakia, Slovenia,
Spain, Sweden, Switzerland, The
former Yugoslav Republic of
Macedonia, Turkey, Ukraine, and
United Kingdom, the Vatican City
and Yugoslavia.Ranbaxy Laboratories Ltd.
    
    IndiaSanofi-Synthelabo, Inc.
    
    U.S., CanadaTecnofarma 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.
 Pfizer Inc.  Out-license of products utilizing our drug delivery technology
   
 Product Manufacturing
   17




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Financial Information about Segments and Geographic Areas
  
 Supply of Medical Lasers Required for Visudyne Therapy
  
 Patents, Trademarks and Proprietary Rights
   Visudyne®
      18




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Atrigel®
   Eligard®
  Aczone
  Lemuteporfin
  19




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Punctal Plug Drug Delivery System
  Other Patents, Trademarks and Proprietary Rights
        
 Competition
  20




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Visudyne®
 ®
  Eligard®
 ® ® ® ® ® ® ®
 Aczone
  
 Government Regulation
  FDA Regulati o n  Approval of New Drug Products
  
    
    preclinical testing;
    
    the 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;
    
    validate and approve the manufacturing facilities and process;
    
    the 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.
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
    
    assess the efficacy of the drug in specific, targeted indications;
    
    assess dosage tolerance and optimal dosage; and
    
    Identify possible adverse effects and safety risks.
    FDA Regulations  Approval of Medical Devices
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FDA Regulation  Post-approval requirements
   EU Regulation  Approval of medicinal product
  Additional Regulatory Issues
   23




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Third-Party Reimbursement
   
 Liability and Product Recall
   
 Research and Development
  
 Human Resources
  24




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OUR EXECUTIVE OFFICERS
  Name
    
    Age
    
    PositionRobert L. Butchofsky
    
    
    46
    
    
    President and Chief Executive OfficerCameron R. Nelson
    
    
    42
    
    
    Vice President, Finance and Chief Financial OfficerAlain H. Curaudeau(1)
    
    
    51
    
    
    Senior Vice President, Portfolio and Project
Management, and Acting Senior Vice President,
Research and DevelopmentLinda M. Lupini
    
    
    48
    
    
    Senior Vice President, Human Resources and
Organizational DevelopmentAlexander R. Lussow
    
    
    45
    
    
    Vice President, Business Development
 
 (1)
    
    As part of the restructuring initiatives announced on January 18, 2008, Mr.
Curaudeau will be leaving QLT effective February 29, 2008. . â
    25




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Item 1A. RISK FACTORS
  We
may not be able to negotiate the sale of defined assets, including
QLT USA or its assets, Eligard,
Aczone and Atrigel, 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 sale of defined assets, including QLT
USA or its assets, Eligard, Aczone and Atrigel, we may not be able to consummate the
transactions contemplated by the definitive agreements.
  The process of pursuing multiple strategic transactions and initiatives simultaneously diverts the
attention of our management and employees, increases our professional services expenses and may
disrupt our operations.
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We
are undertaking 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.
    If we do not sustain profitability, shareholders may lose their investment.
  27




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If there is an adverse outcome in our pending litigation or other legal actions, our business may
be harmed.
     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,
    
    changes in the reimbursement or substitution policies of third-party payors,
    
    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.
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Our commercial success depends in part on the success of third parties to market our products.
   Our revenues depend on payment and reimbursement from third party payors, and if they reduce or
refuse payment or reimbursement, the use and sales of our products will suffer, we may not increase
our market share, and our revenues and profitability will suffer.
    29




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®
 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.
     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.
  30




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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.
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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.
   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.
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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 growth of our business depends 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,
    
    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.
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Our products in clinical trials may not achieve favorable results, may fail to achieve or maintain
regulatory approvals or market acceptance, or may encounter difficulties with proprietary rights or
manufacturing, any of which could adversely affect our prospects for future revenue growth.
   If we do not achieve our projected development goals in the time frames we announce and expect, the
commercialization of our products may be delayed and, as a result,
our business could be materially harmed.
  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.
   34




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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.
  35




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Our
provision for income taxes and effective tax rate may vary
significantly and may adversely affect our results of operations and
cash resources.
   We may need additional capital in the future, and our prospects for obtaining it are uncertain
  Our indebtedness and debt service obligations will require a significant amount of cash and may
adversely affect our financial position and cash resources.
  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 strategies or reimbursement levels for Visudyne or Eligard,
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
    
    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,
Inc.s German licensees by Takeda Chemical industries Ltd. and Takeda Pharma Gmbh,
    
    unfavorable outcome in the appeal of the judgment of the District Court in the
litigation commenced by MEEI against us,
    
    higher than expected operating expenses as a result of increased costs associated with
the development or commercialization of Visudyne, Eligard, Aczone 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.
  The market price of our common shares is extremely volatile and the value of your investment 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.
  Various provisions of our charter and our shareholder rights plan may impede a change in control
that is beneficial to our shareholders.
  37




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Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
     
 Item 3. LEGAL PROCEEDINGS
   38




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(a) Eligard Patent Litigation
       (b) Patent Litigation with MEEI
 ®
    39




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(c) Litigation with Biolitec, Inc.
  40




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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  41




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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.$)2007Fourth 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
    
    
    
    7.782006Fourth Quarter
    
    $
    10.35
    
    
    $
    8.62
    
    
    $
    8.98
    
    
    $
    7.69Third Quarter
    
    
    8.86
    
    
    
    7.10
    
    
    
    7.92
    
    
    
    6.28Second Quarter
    
    
    9.37
    
    
    
    7.53
    
    
    
    8.31
    
    
    
    6.77First Quarter
    
    
    8.99
    
    
    
    6.84
    
    
    
    7.82
    
    
    
    5.95
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Share Price Performance Graph
  
 Dec. 31,
    
    
    
    Dec. 31,
    
    
    
    Dec. 31,
    
    
    
    Dec. 30,
    
    
    
    Dec. 29,
    
    
    
    Dec. 31,2002
    
    
    
    2003
    
    
    
    2004
    
    
    
    2005
    
    
    
    2006
    
    
    
    2007QLT Total Return
    
    
    
    100.00
    
    
    
    
    182.84
    
    
    
    
    143.51
    
    
    
    
    55.75
    
    
    
    
    73.66
    
    
    
    
    32.69S&P/TSX Composite Index
    
    
    
    100.00
    
    
    
    
    124.29
    
    
    
    
    139.79
    
    
    
    
    170.42
    
    
    
    
    195.15
    
    
    
    
    209.13NASDAQ Biotechnology Index
    
    
    
    100.00
    
    
    
    
    119.78
    
    
    
    
    117.85
    
    
    
    
    117.26
    
    
    
    
    118.70
    
    
    
    
    105.60
   Dividend Policy
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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.
  Certain Canadian and U.S. Federal Income Tax Information for U.S. Residents
  44




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Canadian Federal Tax Information
    U.S. Federal Tax Information
      Until such time, U.S. Holders that desire to maintain a QEF election
may contact our Investment Relations group for the PFIC Annual Information Statement, which may be
used to complete their annual QEF election filings.
 45




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##### Table of Contents



Item 6. SELECTED FINANCIAL DATA
 Annual Financial Data
 Year Ended December 31,
    
    2007(5)(6)(7)
    
    2006(5)
    
    2005(4)
    
    2004(2)(3)
    
    2003(In thousands of U.S. dollars except per share information)CONSOLIDATED STATEMENT OF OPERATIONS DATATotal revenues
    
    $
    127,905
    
    
    $
    175,090
    
    
    $
    229,837
    
    
    $
    184,755
    
    
    $
    146,750Research and development expenses
    
    
    46,428
    
    
    
    56,428
    
    
    
    63,330
    
    
    
    48,698
    
    
    
    44,905(Loss) income from continuing operations
    
    
    (109,736
    )
    
    
    (83,415
    )
    
    
    (313,484
    )
    
    
    (163,204
    )
    
    
    44,817(Loss) income before extraordinary gain
    
    
    (109,997
    )
    
    
    (101,605
    )
    
    
    (325,412
    )
    
    
    (178,226
    )
    
    
    44,817Net (loss) income
    
    
    (109,997
    )
    
    
    (101,605
    )
    
    
    (325,412
    )
    
    
    (165,709
    )
    
    
    44,817Basic net (loss) income per common share:Continuing operations
    
    
    (1.47
    )
    
    
    (0.99
    )
    
    
    (3.38
    )
    
    
    (2.23
    )
    
    
    0.65Discontinued operations
    
    
    (0.00
    )
    
    
    (0.22
    )
    
    
    (0.13
    )
    
    
    (0.20
    )
    
    
    Extraordinary gain(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17
    
    
    
    Net (loss) income
    
    
    (1.47
    )
    
    
    (1.20
    )
    
    
    (3.51
    )
    
    
    (2.26
    )
    
    
    0.65Diluted net (loss) income per common
share:Continuing operations
    
    
    (1.47
    )
    
    
    (0.99
    )
    
    
    (3.38
    )
    
    
    (2.23
    )
    
    
    0.59Discontinued operations
    
    
    (0.00
    )
    
    
    (0.22
    )
    
    
    (0.13
    )
    
    
    (0.20
    )
    
    
    Extraordinary gain(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17
    
    
    
    Net (loss) income
    
    
    (1.47
    )
    
    
    (1.20
    )
    
    
    (3.51
    )
    
    
    (2.26
    )
    
    
    0.59CONSOLIDATED BALANCE SHEET DATACash, cash equivalents and short-term
investment securities
    
    $
    126,731
    
    
    $
    374,216
    
    
    $
    465,615
    
    
    $
    379,852
    
    
    $
    495,430Working capital
    
    
    49,582
    
    
    
    323,511
    
    
    
    514,713
    
    
    
    465,826
    
    
    
    556,733Total assets
    
    
    548,987
    
    
    
    639,106
    
    
    
    776,494
    
    
    
    1,116,249
    
    
    
    634,722Convertible debt
    
    
    
    
    
    
    172,500
    
    
    
    172,500
    
    
    
    172,500
    
    
    
    172,500Total shareholders equity
    
    
    219,823
    
    
    
    303,214
    
    
    
    526,111
    
    
    
    856,779
    
    
    
    433,371
  Quarterly Financial Data (1)
  Three Months Ended
    
    December 31
    
    September 30
    
    June 30
    
    March 31(In thousands of U.S. dollars except per share information)2007(5) (6) (7)Total revenues
    
    $
    30,885
    
    
    $
    28,658
    
    
    $
    35,658
    
    
    $
    32,703Gross profit
    
    
    16,361
    
    
    
    18,746
    
    
    
    23,416
    
    
    
    23,984Research and development expenses
    
    
    13,553
    
    
    
    10,718
    
    
    
    11,075
    
    
    
    11,083Net (loss) income from continuing
operations
    
    
    (46,722
    )
    
    
    611
    
    
    
    (68,496
    )
    
    
    4,863Net (loss) income
    
    
    (46,547
    )
    
    
    346
    
    
    
    (68,667
    )
    
    
    4,863Basic net (loss) income per common shareContinuing operations
    
    
    (0.63
    )
    
    
    0.01
    
    
    
    (0.91
    )
    
    
    0.06Discontinued operations
    
    
    (0.00
    )
    
    
    (0.00
    )
    
    
    (0.00
    )
    
    
    0.00Net (loss) income
    
    
    (0.62
    )
    
    
    0.00
    
    
    
    (0.92
    )
    
    
    0.06Diluted net (loss) income per common shareContinuing operations
    
    
    (0.63
    )
    
    
    0.01
    
    
    
    (0.91
    )
    
    
    0.06Discontinued operations
    
    
    (0.00
    )
    
    
    (0.00
    )
    
    
    (0.00
    )
    
    
    0.00Net (loss) income
    
    
    (0.62
    )
    
    
    0.00
    
    
    
    (0.92
    )
    
    
    0.06
 46




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Three Months Ended
    
    December 31
    
    September 30
    
    June 30
    
    March 31(In thousands of U.S. dollars except per share information)2006(5)Total revenues
    
    $
    38,636
    
    
    $
    38,246
    
    
    $
    47,796
    
    
    $
    50,412Gross profit
    
    
    28,643
    
    
    
    27,780
    
    
    
    36,245
    
    
    
    40,231Research and development expenses
    
    
    12,724
    
    
    
    13,564
    
    
    
    15,767
    
    
    
    14,373Net (loss) income from continuing
operations
    
    
    (110,505
    )
    
    
    6,195
    
    
    
    8,240
    
    
    
    12,654Net (loss) income
    
    
    (117,476
    )
    
    
    (3,746
    )
    
    
    7,484
    
    
    
    12,133Basic net (loss) income per common shareContinuing operations
    
    
    (1.47
    )
    
    
    (0.07
    )
    
    
    0.09
    
    
    
    0.14Discontinued operations
    
    
    (0.09
    )
    
    
    (0.12
    )
    
    
    (0.01
    )
    
    
    (0.01
    )Net (loss) income
    
    
    (1.56
    )
    
    
    (0.04
    )
    
    
    0.08
    
    
    
    0.13Diluted net (loss) income per common
shareContinuing operations
    
    
    (1.47
    )
    
    
    (0.07
    )
    
    
    0.09
    
    
    
    0.14Discontinued operations
    
    
    (0.09
    )
    
    
    (0.12
    )
    
    
    (0.01
    )
    
    
    (0.01
    )Net (loss) income
    
    
    (1.56
    )
    
    
    (0.04
    )
    
    
    0.08
    
    
    
    0.13
 
 
 
 
 
 
 
 47




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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;
    
    our expectations regarding European Visudyne label changes, reimbursement and sales;
    
    anticipated future operating results;
    
    our expectations as to the outcome of the appeal of the judgment in the Massachusetts
Eye and Ear Infirmary, or MEEI, litigation against us and the effect of an adverse
judgment on the MGH license agreement;
    
    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 U.S. Food and Drug Administration, or FDA, and
other local and foreign regulatory requirements as well as our product specifications;
    
    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 ability to sell certain core and non-core assets at
prices acceptable to us or at all;
    
    the outcome and timing of the FDA decision to remove the label restriction on Aczone is
uncertain;
    
    the anticipated timing, cost and progress of the development of our technology
(including our punctal plug delivery system and our photodynamic therapy dermatology
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.
  48




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OVERVIEW
 ® ® ®
     ®
  RECENT DEVELOPMENTS
  49




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##### Table of Contents




    
    the sale of QLT USA, Inc. (QLT USA), our wholly owned U.S. subsidiary, whose primary
assets include the Eligard product line for prostate cancer, Aczone, a dermatology product for
the treatment of acne vulgaris, and the Atrigel drug delivery system, either in a single
transaction or a series of transactions;
 
    
    the sale of the land and building associated with and surrounding our corporate head office
in Vancouver; and
 
    
    the reduction in headcount of 115 employees with planned future reductions as assets are
divested.
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Reporting Currency and Foreign Currency Translation
  Revenue Recognition
 Net Product Revenue
 ® ®
 50




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##### Table of Contents



Net Royalties
  Contract Research and Development
  51




---



##### Table of Contents



Licensing and milestones
  Cost of Sales
       Stock-Based Compensation
 Share-Based Payment, Accounting for Stock Issued to Employees.
 52




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##### Table of Contents



Accounting for Stock-Based Payment
    Research and Development
  Income Taxes
  53




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Accounting for Uncertainty in Income Taxes,
 Discontinued Operations
  Contingency Related to Legal Proceedings
     Long-Lived and Intangible Assets
  Accounting
for the Impairment or Disposal of Long-lived Assets.
 54




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##### Table of Contents



Business Combinations Determining Whether a Nonmonetary Transaction Involves Receipt
of Productive Assets or of a Business
 Impairment of Goodwill
 Goodwill and Other
Intangibles
 Recently Issued and Recently Adopted Accounting Standards
 Accounting for Uncertainty in Income Taxes
 an Interpretation of FASB Statement No. 109
 Accounting for Certain Hybrid Financial Instruments
- an amendment of FASB statement 133 and 140
 55




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##### Table of Contents



Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115
 ,
Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research
and Development Activities.
 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 Fulletin No. 51
 COMPARISON OF YEARS ENDED DECEMBER 31, 2007 AND 2006
  56




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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
    
    
    
    22,494$
    95,857
    
    
    $
    151,860
 
 (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.(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. 57




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(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.   Net Royalties
  Costs and Expenses
 Cost of Sales
   Accrued Cost of Sales re: MEEI
  Research and Development
  58




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
    
    changes in the regulatory environment,
    
    introduction of competing treatments,
    
    unexpected safety issues,
    
    patent maintenance and enforcement issues,
    
    changes in the commercial marketplace,
    
    difficulties in enrolling patients,
    
    delays in study progression,
    
    inability to develop cost effective manufacturing methods that comply with regulatory
standards,
    
    uncertainties related to collaborative arrangements,
    
    environmental risks, and
    
    other factors discussed under Item 1A. Risk Factors and Recent Developments in this
Report.
  (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Ocular
    
    $
    27,584
    
    
    $
    18,539
    
    
    $
    18,215Dermatology
    
    
    11,279
    
    
    
    15,769
    
    
    
    11,410Urology and Oncology
    
    
    2,417
    
    
    
    7,500
    
    
    
    23,936Other (including Atrigel programs not in
the above therapeutic areas)
    
    
    5,148
    
    
    
    14,620
    
    
    
    9,769$
    46,428
    
    
    $
    56,428
    
    
    $
    63,330
  Product/Indication
    
    Location(s)
    
    StatusPunctal PlugGlaucoma
    
    U.S.
    
    Plan to complete the IND-enabling program in early 2008LemuteporfinAcne
    
    Canada
    
    Phase I/II studies ongoingVisudyneWet AMD
    
    U.S., Canada
    
    Visudyne followed by an anti-VEGF
drug either as a bi-therapy or triple therapy
 59




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®
   Selling, General and Administrative Expenses
  60




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Litigation
   In-process Research and Development
   Business Combinations Determining Whether
a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business
 Restructuring Charge
  61




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Investment and Other Income
 Net Foreign Exchange (losses) Gains
   For the year ended
    
    For the year ended(In thousands of U.S. dollars)
    
    December 31, 2007
    
    December 31, 2006Cash and cash equivalents 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) gains
    
    $
    (1,743
    )
    
    $
    (3,706
    )
 Interest Income
  Interest Expense
  Other Gains
   Discontinued Operations
 Accounting for the Impairment or Disposal
of Long-lived Assets
 Income taxes
  62




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COMPARISON OF YEARS ENDED DECEMBER 31, 2006 AND 2005
  Revenues
 Net Product Revenue
  For the year endedDecember 31,(In thousands of U.S. dollars)
    
    2006
    
    2005Visudyne® sales by Novartis
    
    $
    353,759
    
    
    $
    483,762Less: Marketing and distribution costs(1)
    
    
    (132,669
    )
    
    
    (142,244
    )Less: Inventory costs(2)
    
    
    (18,275
    )
    
    
    (24,060
    )Less: Royalties to third parties(3)
    
    
    (7,545
    )
    
    
    (10,699
    )$
    195,270
    
    
    $
    306,759QLTs 50% share of Novartis net proceeds from Visudyne sales
    
    $
    97,635
    
    
    $
    153,379Add: Advance on inventory costs from Novartis (4)
    
    
    15,063
    
    
    
    18,932Add: Royalties reimbursed to QLT(5)
    
    
    7,622
    
    
    
    10,431Add: Other costs reimbursed to QLT(6)
    
    
    9,046
    
    
    
    4,496Revenue from Visudyne® sales
    
    $
    129,366
    
    
    $
    187,238Net product revenue from Eligard®
    
    
    22,494
    
    
    
    16,808$
    151,860
    
    
    $
    204,046
 
 (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 Pharma
AG. 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 , plus Novartis packaging and labelling costs, freight and
custom duties. 63




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(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. 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. This expense includes marketing support, legal and
administrative expenses that we incur in support of Visudyne sales.   Net Royalties
  Contract Research and Development Revenue
  Costs and Expenses
 Cost of Sales
  64




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Research and Development
  Selling, General and Administrative Expenses
  Amortization of Intangibles
  Litigation Settlement
  Impairment of Goodwill and other Intangible Assets
   Impairment of plant and equipment
  65




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Restructuring
    Investment and Other Income
 Net Foreign Exchange (Losses) Gains
   For the year ended
    
    For the year ended(In thousands of U.S. dollars)
    
    December 31, 2006
    
    December 31, 2005Cash and cash equivalents and short-term investments
    
    $
    733
    
    
    $
    (5,636
    )U.S. dollar
convertible debt
    
    
    (562
    )
    
    
    5,857Foreign exchange contracts
    
    
    (4,606
    )
    
    
    7,401Foreign currency receivables and payables
    
    
    729
    
    
    
    (3,470
    )Net foreign exchange (losses) gains
    
    $
    (3,706
    )
    
    $
    4,152
 Interest Income
  Interest Expense
  Other Gains
  Discontinued Operations
  66




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Goodwill and Other Intangibles
  Income taxes
   LIQUIDITY AND CAPITAL RESOURCES
      67




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Interest and Foreign Exchange Rates
     Maturity Period
    
    Quantity (millions)
    
    Average PriceU.S. / Canadian dollar option-dated
forward contracts to sell USD
    
    
    2008
    
    
    USD 60.0
    
    0.97720 per USD
 68




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Contractual Obligations
    (in thousands of U.S. dollars)
    
    Payments due by periodContractual Obligations1
    
    Total
    
    Less than 1 year
    
    1-3 years
    
    3-5 years
    
    More than 5 yearsConvertible Debt:2Principal
    
    $
    172,500
    
    
    $
    172,500
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest
    
    
    3,644
    
    
    
    3,644
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases 3
    
    
    835
    
    
    
    233
    
    
    
    602
    
    
    
    
    
    
    
    Purchase Obligations 4
    
    
    28,056
    
    
    
    24,826
    
    
    
    2,789
    
    
    
    441
    
    
    
    Total
    
    $
    205,035
    
    
    $
    201,203
    
    
    $
    3,391
    
    
    $
    441
    
    
    $
    
 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. We also recognized an additional
long-term uncertain tax liability of $0.2 million during the year for a total of $2.1 million
as of December 31, 2007. 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.
    
    Convertible debt relates to the $172.5 million aggregate principal amount of 3% convertible
senior notes described above. The amounts in the table above include interest and principal
payable to 2008 assuming
 69




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##### Table of Contents



holders of the notes redeem on the earliest permitted redemption date
of September 15, 2008. If redemption does not occur until the due date in 2023, total interest
payable will be $86.4 million.3.
    
    Operating leases comprise our long-term leases of photocopiers, office space and postage
meters.4.
    
    Purchase obligations comprise minimum purchase requirements of our product supply agreements
with contract manufacturers ($25.2 million) and other outstanding purchase commitments related
to the normal course of business ($3.7 million).
 Off-Balance Sheet Arrangements
   General
    FACTORS AFFECTING OUR BUSINESS AND PROSPECTS
  
    
    the failure to sell certain of our key assets that are part of the strategic
initiatives announced by our Board of Directors,
    
    the failure of acquisitions to achieve anticipated results,
    
    competitive factors that may limit our ability to market our products,
 70




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##### Table of Contents




    
    insufficient cash flow that could affect our debt financing and create refinancing
risk,
    
    failure to generate sufficient revenue, which could impair our debt service payments,
    
    the failure to succeed with new products,
    
    our inability to obtain and enforce patents to protect our property rights,
    
    our dependence on contract manufacturers,
    
    potential liability for environmental contamination, which could result in substantial
costs,
    
    our failure to successfully address competition for our products,
    
    adverse outcome in ongoing litigation,
    
    our dependence on third parties to market our products,
    
    efforts of governmental authorities and third party payors to limit or reduce
reimbursement for our products,
    
    the inability to successfully develop and launch replacements for products that lose
patent protection,
    
    impact of product liability claims,
    
    impact of regulatory approvals on the marketing of products,
    
    failure to achieve projected development goals within anticipated timeframes, and
    
    our ability to attract and retain key employees.
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##### Table of Contents



Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Managements Report on Internal Control over Financial Reporting
    72




---



##### Table of Contents



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
 
 73




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 To the Board of Directors and Shareholders of
 QLT INC.
     Internal ControlIntegrated Framework
 /s/ DELOITTE & TOUCHE LLP
 Independent Registered Chartered Accountants
 
 74




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
 As at December 31,(In thousands of U.S. dollars)
    
    2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    126,731
    
    
    $
    299,053Short-term investment securities
    
    
    
    
    
    
    75,163Restricted cash
    
    
    123,495
    
    
    
    3,916Accounts receivable (Note 4)
    
    
    25,257
    
    
    
    38,872Income taxes receivable
    
    
    48,421
    
    
    
    4,049Inventories (Note 5)
    
    
    18,511
    
    
    
    34,268Current portion of deferred income tax assets (Note 18)
    
    
    19,392
    
    
    
    8,657Other (Note 6)
    
    
    11,930
    
    
    
    14,031373,737
    
    
    
    478,009Property, plant and equipment (Note 7)
    
    
    52,750
    
    
    
    50,497Deferred income tax assets (Note 18)
    
    
    7,041
    
    
    
    9,838Goodwill (Note 9)
    
    
    94,903
    
    
    
    98,641Long-term inventories and other long-term assets (Note 10)
    
    
    20,556
    
    
    
    2,121$
    548,987
    
    
    $
    639,106LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    8,486
    
    
    $
    15,255Income taxes payable
    
    
    
    
    
    
    29Accrued restructuring charge (Note 17)
    
    
    153
    
    
    
    2,383Accrued liabilities (Note 11)
    
    
    123,294
    
    
    
    125,805Convertible debt (Note 12)
    
    
    172,500
    
    
    
    Current portion of deferred revenue
    
    
    8,431
    
    
    
    11,508Current portion of deferred income tax liabilities (Note 18)
    
    
    11,291
    
    
    
    324,155
    
    
    
    154,980Deferred income tax liabilities (Note 18)
    
    
    
    
    
    
    5,483Uncertain tax position liabilities
    
    
    2,070
    
    
    
    Deferred revenue
    
    
    2,939
    
    
    
    2,929Convertible debt (Note 12)
    
    
    
    
    
    
    172,500329,164
    
    
    
    335,892COMMITMENTS AND GUARANTEES (NOTE 21)CONTINGENCIES (NOTE 23)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
    
    
    
    708,206December 31, 2007 74,620,328 sharesDecember 31, 2006 75,188,980 sharesAdditional paid in-capital
    
    
    119,779
    
    
    
    114,724Accumulated deficit
    
    
    (714,455
    )
    
    
    (603,251
    )Accumulated other comprehensive income
    
    
    112,278
    
    
    
    83,535219,823
    
    
    
    303,214$
    548,987
    
    
    $
    639,106
  75




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CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended December 31,(In thousands of U.S. dollars except per share information)
    
    2007
    
    
    2006
    
    
    2005RevenuesNet product revenue (Note 15)
    
    $
    95,857
    
    
    $
    151,860
    
    
    $
    204,046Royalties
    
    
    30,362
    
    
    
    21,099
    
    
    
    15,816Contract research and development (Note 16)
    
    
    299
    
    
    
    1,155
    
    
    
    9,251Licensing and milestones
    
    
    1,387
    
    
    
    976
    
    
    
    724127,905
    
    
    
    175,090
    
    
    
    229,837Costs and expensesCost of sales
    
    
    45,396
    
    
    
    42,191
    
    
    
    46,056Accrued cost of sales re: MEEI (Note 23)
    
    
    2,830
    
    
    
    
    
    
    
    Research and development
    
    
    46,428
    
    
    
    56,428
    
    
    
    63,330Selling, general and administrative
    
    
    27,414
    
    
    
    42,228
    
    
    
    22,975Depreciation
    
    
    6,505
    
    
    
    6,255
    
    
    
    6,768Amortization of intangibles
    
    
    
    
    
    
    
    
    
    
    6,334Litigation settlement (Note 23)
    
    
    110,162
    
    
    
    112,500
    
    
    
    Impairment of goodwill and other intangible assets
    
    
    
    
    
    
    
    
    
    
    401,085Impairment of plant and equipment
    
    
    
    
    
    
    
    
    
    
    6,955Purchase of in-process research and development
    
    
    42,865
    
    
    
    
    
    
    
    Restructuring charge (Note 17)
    
    
    938
    
    
    
    2,828
    
    
    
    8,042282,538
    
    
    
    262,430
    
    
    
    561,545Operating loss
    
    
    (154,633
    )
    
    
    (87,340
    )
    
    
    (331,708
    )Investment and other income (loss)Net foreign exchange (loss) gains
    
    
    (1,743
    )
    
    
    (3,706
    )
    
    
    4,152Interest income
    
    
    14,278
    
    
    
    20,488
    
    
    
    13,203Interest expense
    
    
    (9,026
    )
    
    
    (6,595
    )
    
    
    (6,357
    )Other gains
    
    
    4,813
    
    
    
    2,773
    
    
    
    49Loss before income taxes
    
    
    (146,311
    )
    
    
    (74,380
    )
    
    
    (320,661
    )Recovery of (provision for) income taxes (Note 18)
    
    
    36,575
    
    
    
    (9,035
    )
    
    
    7,177Loss from continuing operations
    
    $
    (109,736
    )
    
    $
    (83,415
    )
    
    $
    (313,484
    )Loss from discontinued operations, net of income tax (Note 19)
    
    
    (261
    )
    
    
    (18,190
    )
    
    
    (11,928
    )Net loss
    
    $
    (109,997
    )
    
    $
    (101,605
    )
    
    $
    (325,412
    )Basic net loss per common shareContinuing operations
    
    $
    (1.47
    )
    
    $
    (0.99
    )
    
    $
    (3.38
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.22
    )
    
    
    (0.13
    )Net loss
    
    $
    (1.47
    )
    
    $
    (1.20
    )
    
    $
    (3.51
    )Diluted net loss per common shareContinuing operations
    
    $
    (1.47
    )
    
    $
    (0.99
    )
    
    $
    (3.38
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.22
    )
    
    
    (0.13
    )Net loss
    
    $
    (1.47
    )
    
    $
    (1.20
    )
    
    $
    (3.51
    )Weighted average number of common shares outstanding (thousands)Basic
    
    
    74,907
    
    
    
    84,596
    
    
    
    92,637Diluted
    
    
    74,907
    
    
    
    84,596
    
    
    
    92,637
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CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended December 31,(In thousands of U.S. dollars)
    
    2007
    
    
    2006
    
    
    2005Cash flows (used in) provided by operating activitiesNet loss
    
    $
    (109,997
    )
    
    $
    (101,605
    )
    
    $
    (325,412
    )Adjustments to reconcile net income to net cash from
operating activitiesImpairment of goodwill and other intangible assets
    
    
    
    
    
    
    
    
    
    
    410,534Impairment of plant and equipment
    
    
    
    
    
    
    
    
    
    
    6,955Write-down of assets held for sale
    
    
    
    
    
    
    8,592
    
    
    
    In-process research and development
    
    
    42,865
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    
    
    
    
    78
    
    
    
    6,915Depreciation
    
    
    6,710
    
    
    
    7,087
    
    
    
    8,088Write-down of fixed assets, investments and deposit
    
    
    403
    
    
    
    1,013
    
    
    
    Write-down of inventory
    
    
    3,074
    
    
    
    2,584
    
    
    
    Amortization of deferred financing expenses
    
    
    1,290
    
    
    
    1,218
    
    
    
    1,139Gain on sale of assets
    
    
    (3,989
    )
    
    
    
    
    
    
    Share-based compensation
    
    
    3,502
    
    
    
    4,284
    
    
    
    Unrealized foreign exchange gains
    
    
    (22,420
    )
    
    
    (9,503
    )
    
    
    (6,919
    )Tax loss utilization
    
    
    3,738
    
    
    
    
    
    
    
    Interest earned on restricted cash
    
    
    (2,509
    )
    
    
    (41
    )
    
    
    Deferred income taxes
    
    
    3,918
    
    
    
    (10,471
    )
    
    
    (36,189
    )Loss on disposal of assets held for sale
    
    
    
    
    
    
    8,001
    
    
    
    Litigation
    
    
    110,162
    
    
    
    
    
    
    
    Accrued cost of sales re: MEEI
    
    
    2,830
    
    
    
    
    
    
    
    Changes in non-cash operating assets and liabilitiesSale (purchase) of trading securities
    
    
    58,357
    
    
    
    (58,357
    )
    
    
    Accounts receivable
    
    
    16,800
    
    
    
    7,137
    
    
    
    12,963Inventories
    
    
    (3,191
    )
    
    
    6,573
    
    
    
    275Other current assets
    
    
    5,590
    
    
    
    6,351
    
    
    
    (5,761
    )Accounts payable
    
    
    (6,254
    )
    
    
    (476
    )
    
    
    2,661Income tax (receivable) payable
    
    
    (44,429
    )
    
    
    (21,694
    )
    
    
    16,190Accrued restructuring charge
    
    
    (2,306
    )
    
    
    (2,836
    )
    
    
    5,134Other accrued liabilities
    
    
    (116,238
    )
    
    
    107,837
    
    
    
    (11,697
    )Deferred revenue
    
    
    (4,763
    )
    
    
    1,396
    
    
    
    10,582(56,857
    )
    
    
    (42,832
    )
    
    
    95,458Cash (used in) provided by investing activitiesAppeal bond collateral
    
    
    (118,781
    )
    
    
    
    
    
    
    Short-term investment securities
    
    
    16,435
    
    
    
    112,834
    
    
    
    (5,970
    )Restricted cash
    
    
    1,689
    
    
    
    (3,875
    )
    
    
    Purchase of property, plant and equipment
    
    
    (2,034
    )
    
    
    (6,546
    )
    
    
    (7,726
    )Proceeds on disposal of property and equipment
    
    
    
    
    
    
    20,728
    
    
    
    Proceeds on sale of assets
    
    
    4,035
    
    
    
    
    
    
    
    Other acquisition related costs
    
    
    (32
    )
    
    
    
    
    
    
    (1,012
    )Acquisition
of ForSight Newco. II, Inc.
    
    
    (42,631
    )
    
    
    
    
    
    
    (141,319
    )
    
    
    123,141
    
    
    
    (14,708
    )Cash used in financing activitiesCommon shares repurchased, net of fees
    
    
    (5,878
    )
    
    
    (129,433
    )
    
    
    (27,754
    )Issuance of common shares
    
    
    1,260
    
    
    
    817
    
    
    
    12,879(4,618
    )
    
    
    (128,616
    )
    
    
    (14,875
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    30,472
    
    
    
    1,561
    
    
    
    2,837Net (decrease) increase in cash and cash equivalents
    
    
    (172,322
    )
    
    
    (46,746
    )
    
    
    68,712
 77




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##### Table of Contents



Year ended December 31,(In thousands of U.S. dollars)
    
    2007
    
    
    2006
    
    
    2005Cash and cash equivalents, beginning of year
    
    
    299,053
    
    
    
    345,799
    
    
    
    277,087Cash and cash equivalents, end of year
    
    $
    126,731
    
    
    $
    299,053
    
    
    $
    345,799Supplementary cash flow information:Interest paid
    
    $
    5,861
    
    
    $
    5,792
    
    
    $
    5,830Income taxes paid
    
    
    148
    
    
    
    40,235
    
    
    
    7,119
  78




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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 Accumulated(All amounts except share and per share
    
    
    
    
    
    
    
    
    
    Additional
    
    Other
    
    
    
    
    
    
    
    
    
    Totalinformation are expressed in thousands
    
    Common Shares
    
    Paid-in
    
    Comprehensive
    
    Accumulated
    
    Comprehensive
    
    Shareholdersof U.S. dollars)
    
    Shares
    
    Amount
    
    Capital
    
    Income (Loss)
    
    Deficit
    
    Income (Loss)
    
    EquityBalance at December 31, 2004
    
    
    92,021,572
    
    
    $
    848,498
    
    
    $
    92,193
    
    
    $
    89,882
    
    
    $
    (173,794
    )
    
    
    
    
    
    $
    856,779Exercise of stock options at prices ranging
from CAD$12.10 to CAD $13.35 per share and
U.S. $2.63 - U.S. $16.22 per share
    
    
    1,304,509
    
    
    
    25,068
    
    
    
    (15,593
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,475Exercise of warrant at U.S. $3.39 per share
    
    
    1,000,000
    
    
    
    19,594
    
    
    
    (16,204
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,390Common share repurchase
    
    
    (3,141,400
    )
    
    
    (31,484
    )
    
    
    6,169
    
    
    
    
    
    
    
    (2,439
    )
    
    
    
    
    
    
    (27,754
    )Other comprehensive loss:Cumulative translation adjustment from
application of U.S. dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,792
    
    
    
    
    
    
    $
    9,792
    
    
    
    9,792Unrealized (loss) on available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159
    )
    
    
    
    
    
    
    (159
    )
    
    
    (159
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (325,412
    )
    
    
    (325,412
    )
    
    
    (325,412
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (315,779
    )
    
    
    Balance at December 31, 2005
    
    
    91,184,681
    
    
    $
    861,676
    
    
    $
    66,565
    
    
    $
    99,515
    (1)
    
    $
    (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 (loss) on
available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    207
    
    
    
    207Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,605
    )
    
    
    (101,605
    )
    
    
    (101,605
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117,585
    )
    
    
    Balance at December 31,
2006
    
    
    75,188,980
    
    
    $
    708,206
    
    
    $
    114,724
    
    
    $
    83,535
    (1)
    
    $
    (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
    
    
    
    28,728
 79




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##### Table of Contents



Accumulated(All amounts except share and per share
    
    
    
    
    
    
    
    
    
    Additional
    
    Other
    
    
    
    
    
    
    
    
    
    Totalinformation are expressed in thousands
    
    Common Shares
    
    Paid-in
    
    Comprehensive
    
    Accumulated
    
    Comprehensive
    
    Shareholdersof U.S. dollars)
    
    Shares
    
    Amount
    
    Capital
    
    Income (Loss)
    
    Deficit
    
    Income (Loss)
    
    EquityUnrealized gain on
available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    15Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109,997
    )
    
    
    (109,997
    )
    
    
    (109,997
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81,254
    )
    
    
    Balance at December 31,
2007
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    119,779
    
    
    $
    112,278
    (1)
    
    $
    (714,455
    )
    
    
    
    
    
    $
    219,823
 (1)
    
    At December 31, 2007, our accumulated other comprehensive income are related almost entirely to
cumulative translation adjustments from the application of U.S. dollar reporting with an
insignificant amount due to unrealized loss on available for sale securities.  80




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 ® ® ®
 1. BASIS OF PRESENTATION
  Accounting for the Impairment or Disposal
of Long-lived Assets,
 2. PRINCIPLES OF CONSOLIDATION
  3. SIGNIFICANT ACCOUNTING POLICIES
 Use of Estimates
  Reporting Currency and Foreign Currency Translation
  Segmented Information
  81




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##### Table of Contents



Cash, Cash Equivalents and Short-term Investment Securities
  Inventories
  Investments
  Long-lived and Intangible Assets
  Accounting
for the Impairment or Disposal of Long-lived Assets.
  Business Combinations
 82




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##### Table of Contents



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
    
    Rates
    
    
    
    Method
    
    YearsBuildings
    
    Declining balance
    
    4%
    
    or
    
    Straight-line
    
    25 or 40Office furnishings, fixtures and other
    
    Declining balance
    
    20%
    
    or
    
    Straight-line
    
    5Research and commercial manufacturing
equipment and computer operating
system
    
    Declining balance
    
    20%
    
    or
    
    Straight-line
    
    3-5Computer hardware
    
    Declining balance
    
    30%
    
    or
    
    Straight-line
    
    3-5
 Revenue Recognition
 Net Product Revenues
 ® ®
  83




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##### Table of Contents



Net Royalties
  Contract Research and Development
  Licensing and Milestones
  Cost of Sales
  84




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##### Table of Contents



Stock-Based Compensation
 Share-Based Payment, Accounting for
Stock-Based Payment
   Research and Development
  Income Taxes
 Accounting
for Uncertainty in Income Taxes.
 85




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##### Table of Contents



Derivative
Financial Instruments
  Discontinued Operations
  Contingencies Related to Legal Proceedings
  Net (Loss) Income Per Common Share
  86




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##### Table of Contents



(In thousands of U.S. dollars, except per share data)
    
    2007
    
    
    2006
    
    
    2005Numerator:Loss from continuing operations
    
    $
    (109,736
    )
    
    $
    (83,415
    )
    
    $
    (313,484
    )Loss from discontinued operations, net of tax
    
    
    (261
    )
    
    
    (18,190
    )
    
    
    (11,928
    )Net loss
    
    $
    (109,997
    )
    
    $
    (101,605
    )
    
    $
    (325,412
    )Effect of dilutive securities:Convertible senior notes  interest expense
    
    
    
    
    
    
    
    
    
    
    Adjusted loss
    
    $
    (109,997
    )
    
    $
    (101,605
    )
    
    $
    (325,412
    )Denominator: (thousands)Weighted average common shares outstanding
    
    
    74,907
    
    
    
    84,596
    
    
    
    92,637Effect of dilutive securities:Stock options
    
    
    
    
    
    
    
    
    
    
    Convertible senior notes
    
    
    
    
    
    
    
    
    
    
    Diluted potential common shares
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average common shares outstanding
    
    
    74,907
    
    
    
    84,596
    
    
    
    92,637Basic net loss per common share:Continuing operations
    
    $
    (1.47
    )
    
    $
    (0.99
    )
    
    $
    (3.38
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.22
    )
    
    
    (0.13
    )Net loss
    
    $
    (1.47
    )
    
    $
    (1.20
    )
    
    $
    (3.51
    )Diluted net loss per common share:Continuing operations
    
    $
    (1.47
    )
    
    $
    (0.99
    )
    
    $
    (3.38
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.22
    )
    
    
    (0.13
    )Net loss
    
    $
    (1.47
    )
    
    $
    (1.20
    )
    
    $
    (3.51
    )
  Recently Issued Accounting Standards
 Accounting for Uncertainty in Income Taxes
 an Interpretation of FASB Statement No. 109
 Accounting for Certain Hybrid Financial Instruments
- an amendment of FASB statement 133 and 140
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115
 87




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##### Table of Contents



,
Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research
and Development Activities.
 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 Fulletin No. 51
 4. ACCOUNTS RECEIVABLE
 (In thousands of U.S. dollars)
    
    2007
    
    
    2006Visudyne®
    
    $
    11,609
    
    
    $
    24,542Royalties
    
    
    8,193
    
    
    
    8,769Contract research and development
    
    
    213
    
    
    
    641Eligard®product shipments
    
    
    5,049
    
    
    
    2,611Trade and other
    
    
    318
    
    
    
    2,434Allowance for doubtful accounts
    
    
    (125
    )
    
    
    (125
    )$
    25,257
    
    
    $
    38,872
  88




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5. INVENTORIES
 (In thousands of U.S. dollars)
    
    2007
    
    2006Raw materials and supplies
    
    $
    12,653
    
    
    $
    10,723Work-in-process
    
    
    33,819
    
    
    
    27,981Finished goods
    
    
    67
    
    
    
    676Provision for excess inventory
    
    
    (3,020
    )
    
    
    Provision for non-completion of product inventory
    
    
    (4,613
    )
    
    
    (5,112
    )$
    38,906
    
    
    $
    34,268Less: Long-term inventory, net of provisions
    
    
    20,395
    
    
    
    $
    18,511
    
    
    $
    34,268
   6. OTHER CURRENT ASSETS
 (In thousands of U.S. dollars)
    
    2007
    
    2006Inventory in transit held by Novartis
    
    $
    7,995
    
    
    $
    10,677Foreign exchange contracts
    
    
    1,236
    
    
    
    Deferred financing expenses
    
    
    863
    
    
    
    Prepaid expenses and other
    
    
    1,836
    
    
    
    3,354$
    11,930
    
    
    $
    14,031
   89




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##### Table of Contents



7. PROPERTY, PLANT AND EQUIPMENT
 2007Accumulated
    
    Net(In thousands of U.S. dollars)
    
    Cost
    
    Depreciation
    
    Book ValueBuildings
    
    $
    37,488
    
    
    $
    10,526
    
    
    $
    26,962Office furnishings, fixtures, and other
    
    
    6,356
    
    
    
    5,044
    
    
    
    1,312Research equipment
    
    
    17,194
    
    
    
    11,772
    
    
    
    5,422Commercial manufacturing equipment
    
    
    13,306
    
    
    
    6,488
    
    
    
    6,818Computer hardware and operating system
    
    
    23,067
    
    
    
    18,018
    
    
    
    5,049Land
    
    
    7,187
    
    
    
    
    
    
    
    7,187$
    104,598
    
    
    $
    51,848
    
    
    $
    52,750
 2006Accumulated
    
    Net(In thousands of U.S. dollars)
    
    Cost
    
    Depreciation
    
    Book ValueBuildings
    
    $
    30,663
    
    
    $
    7,036
    
    
    $
    23,627Office furnishings, fixtures, and other
    
    
    7,959
    
    
    
    5,102
    
    
    
    2,857Research equipment
    
    
    13,902
    
    
    
    8,704
    
    
    
    5,198Commercial manufacturing equipment
    
    
    11,658
    
    
    
    4,506
    
    
    
    7,152Computer hardware and operating system
    
    
    19,119
    
    
    
    13,611
    
    
    
    5,508Land
    
    
    6,155
    
    
    
    
    
    
    
    6,155$
    89,456
    
    
    $
    38,959
    
    
    $
    50,497
 8. ACQUISITION OF FORSIGHT NEWCO II, INC.
   90




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##### Table of Contents



(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
    
    
    42,86542,338
   Business Combinations Determining Whether
a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business
 9. GOODWILL AND INTANGIBLE ASSETS
    91




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Developed(In thousands of U.S. dollars)
    
    Goodwill
    
    Technology
    
    Trademark
    
    TotalCost
    
    $
    409,586
    
    
    $
    111,600
    
    
    $
    8,000
    
    
    $
    529,186Accumulated amortization
    
    
    
    
    
    
    (7,244
    )
    
    
    (524
    )
    
    
    (7,768
    )Impairment losses
    
    
    (305,628
    )
    
    
    (97,430
    )
    
    
    (7,476
    )
    
    
    (410,534
    )Balance as of December 31,
2005
    
    
    103,958
    
    
    
    6,926
    
    
    
    
    
    
    
    110,884Amortization
    
    
    
    
    
    
    (78
    )
    
    
    
    
    
    
    (78
    )Allocation to loss from
discontinued operations
    
    
    (5,317
    )
    
    
    (6,848
    )
    
    
    
    
    
    
    (12,165
    )Balance as of December 31,
2006
    
    $
    98,641
    
    
    $
    
    
    
    $
    
    
    
    $
    98,641Reduction in valuation
allowance against deferred
tax assets
    
    
    (3,738
    )
    
    
    
    
    
    
    
    
    
    
    (3,738
    )Balance as of December 31,
2007
    
    $
    94,903
    
    
    $
    
    
    
    $
    
    
    
    $
    94,903
  10. OTHER LONG-TERM ASSETS
 (In thousands of U.S. dollars)
    
    2007
    
    2006Inventory, net of provisions
    
    $
    20,395
    
    
    $
    Deferred financing expenses
    
    
    
    
    
    
    1,922Other
    
    
    161
    
    
    
    199$
    20,556
    
    
    $
    2,121
 11. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    2007
    
    2006Royalties
    
    $
    1,033
    
    
    $
    1,723Compensation
    
    
    5,263
    
    
    
    4,683Separation costs
    
    
    
    
    
    
    1,107Foreign exchange contracts
    
    
    
    
    
    
    2,011Atrix acquisition costs
    
    
    
    
    
    
    147Interest
    
    
    1,560
    
    
    
    1,936Litigation settlement  TAP
    
    
    
    
    
    
    112,500Litigation charge  MEEI judgment (Note 23)
    
    
    115,027
    
    
    
    Other
    
    
    411
    
    
    
    1,698$
    123,294
    
    
    $
    125,805
 92




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##### Table of Contents



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, 2007.(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 Toronto Stock Exchange
and the NASDAQ Stock Market, 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 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 have the right to purchase up to $50 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 are
to be made as a normal course issuer bid. All purchases are to be effected in the open market
through the facilities of the Toronto Stock Exchange (TSX) or NASDAQ Stock Market (NASDAQ), and
in accordance with all regulatory requirements. The actual number of common shares which are
purchased and the timing of any such purchases are determined by management. 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.(c)
    
    Shareholder Protection Rights PlanEffective March 17, 2002 we adopted a Shareholder Rights Plan, which was then amended and
restated effective April 8, 2005 (the Rights Plan), and approved, as amended, by the
shareholders of QLT at the 2005 Annual General Meeting of QLT. The Rights Plan will remain
in effect until the 2008 annual meeting of shareholders. Under the Rights Plan, holders of
common shares are entitled to one share purchase right
 93




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##### Table of Contents



for each common share held. Generally, if any person or group makes a take-over bid, other
than a bid permitted under the Rights Plan (a Permitted Bid) or acquires beneficial
ownership of 20% or more of our outstanding common shares without complying with the Rights
Plan, the Rights Plan will entitle the holders of share purchase rights to purchase, in
effect, common shares of QLT at 50% of the prevailing market price. A take-over bid for QLT
can avoid the dilutive effects of the share purchase rights, and therefore become a
Permitted Bid, if it complies with provisions of the Rights Plan.(d)
    
    Stock OptionsWe currently maintain four equity compensation plans which provide for the issuance of
common shares to employees, officers and directors, all of which have been approved by the
shareholders, namely the 1998 Incentive Stock Option Plan, the 2000 Incentive Stock Option
Plan, the 1987 Atrix Performance Stock Option Plan and the 2000 Atrix Performance Stock
Option Plan.As of February 27, 2008, no QLT securities remain available for issuance under the 1998
Stock Option Plan or the 1987 Atrix Performance Stock Option Plan, however, both of these
plans remain in effect for so long as 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 1998 Incentive Stock
Option Plan and the 2000 Incentive Stock Option Plan have an exercise period of 5 years.
Under 1987 Atrix Performance Stock Option Plan and the 2000 Atrix Performance Stock Option
Plan, Atrix previously provided a 10 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 5 year exercise period. No options have
been granted under the 1987 Atrix Performance Stock Option Plan since the acquisition.VestingUnder the 1998 Incentive Stock Option Plan and 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, 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 1987 Atrix Performance Stock Option Plan and 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)
    
    1998 Incentive Stock Option Plan, or 1998 Plan
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##### Table of Contents



Share Reserve. The number of Common Shares which may be reserved for issuance pursuant
to options granted under the 1998 Incentive Stock Option Plan shall not exceed, in the
aggregate, 5,000,000. The number of common shares reserved for issuance to any one
person under this plan shall not, in the aggregate, exceed five percent of QLTs issued
and outstanding common shares (on a non-diluted basis). At December 31, 2007, options
to purchase an aggregate total of 56,750 common shares were outstanding under the 1998
Plan and exercisable in the future at CAD $12.10 per common share.Administration. The Compensation Committee administers the 1998 Incentive Stock Option
Plan.Eligibility. The Directors, officers, and employees of QLT or our affiliated companies,
who in the opinion of the Compensation Committee, are important for our growth and
success and whose participation in this plan will, in the opinion of the executive
compensation committee, accomplish the purposes of this plan, are eligible to
participate under the 1998 Incentive Stock Option Plan.Grant and Exercise of Options. Subject to the terms of the 1998 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.Each option shall terminate on the 90th day after the date on which the
optionee ceases to be an eligible person, provided that if such optionee ceases to be an
eligible person by reason of the death of such optionee, all or any of the common shares
then covered by such option may be purchased by the legal representative of such
optionee, or by the person or persons to whom the right of such optionee under the
option agreement entered into with such optionee have passed by will or by operation of
the laws of devolution or distribution and descent, until the earlier of (i) the date
that is twelve months after the date of the death of such optionee, and (ii) the expiry
date of such option as set out in the respective option agreement.Transferability. No option granted under this plan 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 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 1998 Incentive Stock Option Plan subject to certain
exceptions.(ii)
    
    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 of the issued and outstanding
common shares (on a non-diluted basis). The 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, 2007, options to purchase an
aggregate total of 4,296,622 common shares were outstanding under the 2000 Plan and
exercisable in the future at prices ranging between CAD $4.99 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 is 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 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.
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##### Table of Contents



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, 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.(iii)
    
    1987 Atrix Performance Stock Option Plan, or 1987 Atrix PlanShare Reserve. Prior to our acquisition of Atrix on November 19, 2004, an aggregate of
2,500,000 common shares of Atrix Laboratories, Inc. had been reserved for issuance under
the 1987 Atrix Performance Stock Option Plan. Upon the expiration or termination of an
option which has not been exercised in full, the number of common shares reserved for
issuance under that option which have not been issued will become available for issue
for the purpose of additional options which may be granted under this plan. Upon
acquisition, we assumed the remaining options outstanding and issuable under the 1987
Atrix Performance Stock Option Plan which, after converting, provide for the issuance of
up to 267,937 common shares of QLT Inc. At December 31, 2007, options to purchase an
aggregate total of 10,231 common shares were outstanding under the 1987 Atrix Plan and
exercisable in the future at prices ranging between U.S. $4.73 and U.S. $9.98 per common
share.Administration. The Compensation Committee administers the 1987 Atrix Performance Stock
Option Plan.Eligibility. The Directors, officers, and key employees of Atrix or of any subsidiary
companies, who, in the opinion of the Compensation Committee, contribute materially to
the profitability and success of Atrix are eligible to participate in this plan.
 96




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##### Table of Contents



Grant and Exercise of Options. Subject to the terms of the 1987 Atrix Performance 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.If an employee ceases to be an employee of the Company for any reason, other than by
reason of death or disability, then all options held by such employee which are not
exercisable when the employee ceases to be an employee shall terminate. All options
which are exercisable when the employee ceases to be an employee must be exercised prior
to the earlier of (i) the expiration date of the options or (ii) the date occurring 3
months after the date on which the employee ceases to be an employee.If an employee dies while in the employ of Atrix or during the 3 month post-termination
exercise period, the legal representative of such employee may exercise such option
prior to the earlier of (i) the expiration date of the options, or (ii) the date
occurring 12 months after the date of death. Such options shall terminate if they are
not exercised during such period.If the employment of an employee terminates by reason of the employees disability while
such employee is entitled to exercise an option, such option must be exercised prior to
the earlier of (i) the expiration date of the options or (ii) the date occurring 12
months after the date of the employees disability. Such options shall terminate if
they are not exercised during such period.Transferability. No option may be transferred or assigned except by will or by
operation of the laws of descent and distribution and may be exercised only by an
optionee during his or her lifetime.Amendments or Termination. The Board of Directors has the right at any time to suspend,
amend or terminate the 1987 Atrix Performance Stock Option Plan. No amendment to the
plan will be made without shareholder approval that will (i) increase the total number
of common shares reserved for options under the plan, (ii) reduce the exercise price of
any option granted under this plan below the fair market value at the time of grant,
(iii) modify the provisions of the plan pertaining to eligibility, or (iv) materially
increase the benefits accruing to participants under this plan.(iv)
    
    2000 Atrix Performance Stock Option Plan, or 2000 Atrix PlanShare Reserve. Prior to the 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 is forfeited or cancelled, expires or is 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 Inc. At December 31, 2007, options to purchase an aggregate total of 1,282,152
common shares were outstanding under the 2000 Atrix Plan and exercisable at prices
ranging between U.S. $4.90 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 a 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.
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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 any 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 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.
  Weighted-AverageWeighted Average
    
    Remaining(In Canadian dollars)
    
    Number of Options
    
    Exercise Price
    
    Contractual TermOutstanding at December 31, 2004
    
    
    6,430,398
    
    
    $
    47.82Granted
    
    
    1,447,450
    
    
    
    11.99Exercised
    
    
    (16,944
    )
    
    
    13.09Cancelled
    
    
    (2,391,054
    )
    
    
    77.45Outstanding at December 31, 2005
    
    
    5,469,850
    
    
    $
    25.28Granted
    
    
    1,846,968
    
    
    
    8.77Exercised
    
    
    (2,153
    )
    
    
    7.87Cancelled
    
    
    (3,248,643
    )
    
    
    30.19Outstanding at December 31, 2006
    
    
    4,066,022
    
    
    $
    13.87Granted
    
    
    1,398,096
    
    
    
    8.38Exercised
    
    
    (30,632
    )
    
    
    8.37Cancelled
    
    
    (1,080,114
    )
    
    
    16.40Outstanding at December 31, 2007
    
    
    4,353,372
    
    
    $
    11.52
    
    
    
    3.09Exercisable at December 31, 2007
    
    
    2,430,548
    
    
    $
    13.80
    
    
    
    2.42
 98




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Weighted-AverageWeighted Average
    
    Remaining(In U.S. dollars)
    
    Number of Options
    
    Exercise Price
    
    Contractual TermOutstanding at December 31, 2004
    
    
    5,970,865
    
    
    $
    11.65Granted
    
    
    505,875
    
    
    
    10.40Exercised
    
    
    (1,287,565
    )
    
    
    7.22Cancelled
    
    
    (1,011,801
    )
    
    
    12.71Outstanding at December 31, 2005
    
    
    4,177,374
    
    
    $
    12.59Granted
    
    
    322,085
    
    
    
    8.15Exercised
    
    
    (125,146
    )
    
    
    6.38Cancelled
    
    
    (1,374,157
    )
    
    
    12.86Outstanding at December 31, 2006
    
    
    3,000,156
    
    
    $
    12.31Granted
    
    
    211,235
    
    
    
    7.07Exercised
    
    
    (150,716
    )
    
    
    6.89Cancelled
    
    
    (1,768,292
    )
    
    
    12.76Outstanding at December 31, 2007
    
    
    1,292,383
    
    
    $
    11.46
    
    
    
    4.10Exercisable at December 31, 2007
    
    
    1,042,150
    
    
    $
    12.42
    
    
    
    4.08
   2007
    
    2006
    
    2005Annualized volatility
    
    
    37.0
    %
    
    
    44.5
    %
    
    
    47.1
    %Risk-free interest rate
    
    
    4.4
    %
    
    
    4.1
    %
    
    
    3.5
    %Expected life (years)
    
    
    3.3
    
    
    
    3.0
    
    
    
    2.5Dividends
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    99




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(In thousands of U.S. dollars, except share information)
    
    2007
    
    
    2006Cost of sales
    
    $
    43
    
    
    $
    55Research and development
    
    
    2,161
    
    
    
    2,447Selling, general and administrative
    
    
    1,258
    
    
    
    1,315Restructuring
    
    
    40
    
    
    
    112Discontinued operations
    
    
    
    
    
    
    354Share based compensation expense before income taxes
    
    
    3,502
    
    
    
    4,283Related income tax benefits
    
    
    (152
    )
    
    
    Share based compensation, net of income taxes
    
    $
    3,350
    
    
    $
    4,283
 Pro forma Information for Periods Prior to the Adoption of SFAS 123R
 Accounting for Stock Issued to Employees
  (In thousands of U.S. dollars except per share information)
    
    2005Net (loss) income as reported
    
    $
    (325,412
    )Less: Additional stock-based compensation expense under the
fair value method
    
    
    (7,171
    )Pro forma
    
    $
    (332,583
    )Basic net (loss) income per common shareAs reported
    
    $
    (3.51
    )Pro forma
    
    
    (3.59
    )Diluted net (loss) income per shareAs reported
    
    $
    (3.51
    )Pro forma
    
    
    (3.59
    )
 100




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15. NET PRODUCT REVENUE
  (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Visudyne® sales by Novartis
    
    $
    214,857
    
    
    $
    353,759
    
    
    $
    483,762Less: Marketing and distribution
costs
    
    
    (103,903
    )
    
    
    (132,669
    )
    
    
    (142,244
    )Less: Inventory costs
    
    
    (17,508
    )
    
    
    (18,275
    )
    
    
    (24,060
    )Less: Royalties to third parties
    
    
    (4,546
    )
    
    
    (7,545
    )
    
    
    (10,699
    )$
    88,900
    
    
    $
    195,270
    
    
    $
    306,759QLTs 50% share of Novartis net
proceeds from Visudyne sales
    
    $
    44,450
    
    
    $
    97,635
    
    
    $
    153,379Add: Advance on inventory costs from
Novartis
    
    
    11,332
    
    
    
    15,063
    
    
    
    18,932Add: Royalties reimbursed to QLT
    
    
    4,516
    
    
    
    7,622
    
    
    
    10,431Add: Other costs reimbursed to QLT
    
    
    7,432
    
    
    
    9,046
    
    
    
    4,496Revenue from Visudyne® sales
    
    $
    67,730
    
    
    $
    129,366
    
    
    $
    187,238Net product revenue from Eligard®
    
    
    28,127
    
    
    
    22,494
    
    
    
    16,808$
    95,857
    
    
    $
    151,860
    
    
    $
    204,046
  16. CONTRACT RESEARCH AND DEVELOPMENT
  (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Visudyne® ocular programs
    
    $
    
    
    
    $
    
    
    
    $
    3,685Aczoneprograms
    
    
    
    
    
    
    
    
    
    
    2,716Eligard® programs
    
    
    
    
    
    
    202
    
    
    
    1,177Others
    
    
    299
    
    
    
    953
    
    
    
    1,673Contract research and development revenue
    
    $
    299
    
    
    $
    1,155
    
    
    $
    9,251
 17. RESTRUCTURING CHARGE
   101




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Severance and termination benefits accrued
 December 2005
    
    October 2006(In thousands of U. S. dollars)
    
    Restructuring
    
    Restructuring
    
    TotalBalance at December 31, 2006
    
    $
    686
    
    
    $
    1,514
    
    
    $
    2,200Restructuring charge
    
    
    
    
    
    
    936
    
    
    
    936Adjustments
    
    
    (52
    )
    
    
    54
    
    
    
    2Cash payments
    
    
    (571
    )
    
    
    (2,457
    )
    
    
    (3,028
    )Balance at December 31, 2007
    
    
    63
    
    
    
    47
    
    
    
    110
 Other related expenses accrued
 December 2005
    
    October 2006(In thousands of U. S. dollars)
    
    Restructuring
    
    Restructuring
    
    TotalBalance at December 31, 2006
    
    $
    99
    
    
    $
    84
    
    
    $
    183Restructuring charge
    
    
    
    
    
    
    
    
    
    
    Cash payments
    
    
    (65
    )
    
    
    (75
    )
    
    
    (140
    )Balance at December 31, 2007
    
    
    34
    
    
    
    9
    
    
    
    43
 Combined Total
 December 2005
    
    October 2006(In thousands of U. S. dollars)
    
    Restructuring
    
    Restructuring
    
    TotalBalance at December 31, 2006
    
    $
    785
    
    
    $
    1,598
    
    
    $
    2,383Restructuring charge
    
    
    
    
    
    
    936
    
    
    
    936Adjustments
    
    
    (52
    )
    
    
    54
    
    
    
    2Cash payments
    
    
    (636
    )
    
    
    (2,532
    )
    
    
    (3,168
    )Balance at December 31, 2007
    
    
    97
    
    
    
    56
    
    
    
    153
 18. INCOME TAXES
 Uncertainty in income taxes
 Accounting for Uncertainty in Income Taxes
 102




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(In thousands of U.S. dollars)Balance at January 1, 2007
    
    $
    1,842Increases related to current year tax positions
    
    
    Changes in tax positions of a prior period
    
    
    228Settlements
    
    
    Lapse of Statute of Limitations
    
    
    Balance at December 31, 2007
    
    $
    2,070
     Provision for (recovery of) income taxes
  (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Canada
    
    $
    (121,948
    )
    
    $
    44,782
    
    
    $
    88,421United States and other
    
    
    (24,363
    )
    
    
    (119,162
    )
    
    
    (409,082
    )Loss before income taxes and
discontinued operations
    
    $
    (146,311
    )
    
    $
    (74,380
    )
    
    $
    (320,661
    )
  (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Canada
    
    $
    (40,518
    )
    
    $
    9,130
    
    
    $
    27,661United States and other
    
    
    3,943
    
    
    
    (95
    )
    
    
    (34,838
    )Provision for (recovery of) income taxes
    
    $
    (36,575
    )
    
    $
    9,035
    
    
    $
    (7,177
    )
 103




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(In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Recovery of current and deferred income taxes
    
    $
    (36,792
    )
    
    $
    (35,295
    )
    
    $
    (9,903
    )Increase in valuation allowance
    
    
    217
    
    
    
    44,320
    
    
    
    2,726Provision for (recovery of) income taxes
    
    $
    (36,575
    )
    
    $
    9,035
    
    
    $
    (7,177
    )
 (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Current income taxes
    
    $
    (41,507
    )
    
    $
    19,427
    
    
    $
    30,439Deferred income taxes
    
    
    4,932
    
    
    
    (10,392
    )
    
    
    (37,616
    )Provision for (recovery of) income taxes
    
    $
    (36,575
    )
    
    $
    9,035
    
    
    $
    (7,177
    )
  (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Loss before income taxes and discontinued operations
    
    $
    (146,311
    )
    
    $
    (74,380
    )
    
    $
    (320,661
    )Canadian statutory tax rates
    
    
    34.12
    %
    
    
    34.12
    %
    
    
    34.86
    %Expected income tax (recovery) provision
    
    $
    (49,921
    )
    
    $
    (25,378
    )
    
    $
    (111,782
    )Charge for goodwill impairment
    
    
    
    
    
    
    
    
    
    
    113,265Purchased in-process research and development
    
    
    17,074
    
    
    
    
    
    
    
    Increase in valuation allowance
    
    
    217
    
    
    
    44,330
    
    
    
    2,726Provincial tax credits on patent sourced income
    
    
    
    
    
    
    (4,582
    )
    
    
    Foreign tax rate differences
    
    
    (1,886
    )
    
    
    (3,498
    )
    
    

    (8,984
    )Investment tax credits
    
    
    (2,532
    )
    
    
    (1,685
    )
    
    
    (2,261
    )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
    
    
    1,129
    
    
    
    1,318
    
    
    
    Future tax rate reductions
    
    
    519
    
    
    
    481
    
    
    
    Other
    
    
    (319
    )
    
    


    (375
    )
    
    



    (141
    )Provision for (recovery of) income taxes
    
    $
    (36,575
    )
    
    $
    9,035
    
    
    $
    (7,177
    )
 104




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Deferred tax assets and liabilities
  (In thousands of U.S. dollars)
    
    2007
    
    2006Deferred tax assetsNet operating loss carryforwards
    
    $
    92,698
    
    
    $
    51,563Litigation settlement
    
    
    
    
    
    
    41,868Research & development tax credit carryforwards
    
    
    10,430
    
    
    
    9,518Capital loss carryforwards
    
    
    11,709
    
    
    
    6,302Depreciable and amortizable assets
    
    
    6,509
    
    
    
    6,960Provincial tax credits carryforwards on patent sourced income
    
    
    5,783
    
    
    
    4,469Provision for non-completion of product inventory
    
    
    2,294
    
    
    
    1,651Deferred revenue
    
    
    1,633
    
    
    
    1,457Unpaid employee compensation
    
    
    93
    
    
    
    511Other temporary differences
    
    
    895
    
    
    
    886Total gross deferred income tax assets
    
    $
    132,044
    
    
    $
    125,185Less: valuation allowance
    
    
    (105,611
    )
    
    
    (106,690
    )Total deferred income tax assets
    
    $
    26,433
    
    
    $
    18,495Less: current portion
    
    
    (19,392
    )
    
    
    (8,657
    )Net long-term portion of deferred income tax assets
    
    $
    7,041
    
    
    $
    9,838Deferred tax liabilitiesDeferred tax
liability associated with the tangible and intangible assets acquired in the acquisition of Atrix
    
    $
    (57
    )
    
    $
    (89
    )Unrealized foreign exchange gains
    
    
    (11,234
    )
    
    
    (5,394
    )Total deferred income tax liabilities
    
    $
    (11,291
    )
    
    $
    (5,483
    )Net deferred income tax assets
    
    $
    15,142
    
    
    $
    13,012
   105




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19. DISCONTINUED OPERATIONS
 Accounting for the Impairment or Disposal of
Long-lived Assets
  (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Net revenue
    
    $
    
    
    
    $
    15,077
    
    
    $
    12,136Write-down of assets held for sale
    
    
    
    
    
    $
    (8,592
    )
    
    
    Pre-tax losses
    
    
    
    
    
    $
    (11,322
    )
    
    $
    (16,157
    )Income taxes
    
    
    
    
    
    
    1,093
    
    
    
    4,229
    
    
    
    (10,229
    )
    
    
    (11,928
    )Loss on disposal
    
    $
    (418
    )
    
    $
    (10,488
    )
    
    
    Income tax on disposal
    
    
    157
    
    
    
    2,527
    
    
    
    Net loss from discontinued operations
    
    $
    (261
    )
    
    $
    (18,190
    )
    
    $
    (11,928
    )
 20. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
    106




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.
 Maturity Period
    
    Quantity (millions)
    
    Average PriceU.S. / Canadian dollar option-dated
forward contracts to sell USD
    
    
    2008
    
    
    USD 60.0
    
    0.97720 per USD
 21. COMMITMENTS AND GUARANTEES
  (In thousands of U.S. dollars)Year ending December 31,2008
    
    $
    25,0592009
    
    
    1,7852010
    
    
    1,0152011
    
    
    5912012
    
    
    4412013 and thereafter
    
    
    Total
    
    $
    28,891
  22. SEGMENTED INFORMATION
    (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005Visudyne®
    
    $
    67,731
    
    
    $
    129,366
    
    
    $
    187,238Eligard®
    
    
    58,473
    
    
    
    42,324
    
    
    
    31,588Other
    
    
    15
    
    
    
    1,269
    
    
    
    1,036Contract research and development
    
    
    299
    
    
    
    1,155
    
    
    
    9,251Licensing and milestones
    
    
    1,387
    
    
    
    976
    
    
    
    724$
    127,905
    
    
    $
    175,090
    
    
    $
    229,837
 107




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1
 (In thousands of U.S. dollars)
    
    2007
    
    2006
    
    2005U.S.
    
    $
    42,695
    
    
    $
    54,776
    
    
    $
    102,967Europe
    
    
    57,335
    
    
    
    83,321
    
    
    
    87,852Canada
    
    
    14,703
    
    
    
    17,438
    
    
    
    16,171Other
    
    
    13,172
    
    
    
    19,555
    
    
    
    22,847$
    127,905
    
    
    $
    175,090
    
    
    $
    229,837
  (In thousands of U.S. dollars)
    
    2007
    
    2006Canada
    
    $
    49,404
    
    
    $
    45,634U.S.
    
    
    3,346
    
    
    
    4,863$
    52,750
    
    
    
    50,497
 
 23. CONTINGENCIES
   (a) Eligard Patent Litigation
     108




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(b) Patent Litigation with MEEI
 ®
     109




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(c) Litigation with Biolitec, Inc.
   110




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##### Table of Contents



24. SUBSEQUENT EVENT
  
    
    the sale of QLT USA, our wholly owned U.S. subsidiary whose primary assets include the
Eligard product line for prostate cancer, Aczone, a dermatology product for the treatment of
acne vulgaris, and the Atrigel drug delivery system, either in a single transaction or a
series of transactions;
 
    
    the sale of the land and building associated with and surrounding our corporate head office
in Vancouver; and
 
    
    the reduction in headcount of 115 employees with planned future reductions as assets are
divested.
    111




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##### Table of Contents



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
   
 Item 9B. OTHER INFORMATION
  112




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PART III
  
 Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 Item 11. EXECUTIVE COMPENSATION
  
 Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Equity Compensation Plan Information
  113




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##### Table of Contents



(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
    
    
    4,353,372
    (1)
    
    CAD  $11.52
    
    
    2,334,560Equity compensation
plans approved by
security holders
    
    
    1,292,383
    (1)
    
    USD  $11.46
    
    
    3,975,340Total
    
    
    5,645,755
    
    
    
    
    
    
    
    6,309,900
 
 (1)
    
    We currently maintain four equity compensation plans that have been approved by
shareholders which provide for the issuance of common stock to employees, officers and directors.
These four equity compensation plans are designated as the 1998 Incentive Stock Option Plan, the
2000 Incentive Stock Option Plan, the 1987 Atrix Performance Stock Option Plan and the 2000 Atrix
Performance Stock Option Plan. No further Company securities remain available for issuance under
either the 1998 Stock Option Plan or the 1987 Atrix Performance Stock Option Plan, however, both
Plans remain in effect for so long as options previously granted under these Plans remain
outstanding.  
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  114




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PART IV
 
 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 Financial Statements
 (i)
    
    The following financial statement documents are included as part of Item 8 to this
Form 10-K.
 
 (ii)
    
    Schedules required by Article 12 of Regulation S-X:
  Schedule II  Valuation and Qualifying Accounts for the Years ended December 31, 2007,
2006 and 2005.
 Provision for non-completion of product inventory  (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 year2007
    
    $
    5,112
    
    
    $
    2,083
    
    
    $
    2,582
    
    
    $
    4,6132006
    
    
    3,828
    
    
    
    2,738
    
    
    
    1,454
    
    
    
    5,1122005
    
    
    1,457
    
    
    
    3,137
    
    
    
    766
    
    
    
    3,828
 Reserve for inventory obsolescence  (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 year2007
    
    $
    
    
    
    $
    3,020
    
    
    $
    
    
    
    $
    3,0202006
    
    
    1,452
    
    
    
    1,924
    
    
    
    3,376
    
    
    2005
    
    
    
    
    
    
    2,306
    
    
    
    854
    
    
    
    1,452
 Allowance for doubtful accounts  (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 year2007
    
    $
    125
    
    
    $
    
    
    
    $
    
    
    
    $
    1252006
    
    
    673
    
    
    
    62
    
    
    
    610
    
    
    
    1252005
    
    
    
    
    
    
    683
    
    
    
    10
    
    
    
    673
 115




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##### Table of Contents



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 year2007
    
    $
    106,690
    
    
    $
    4,236
    
    
    $
    (5,315
    )
    
    $
    105,6112006
    
    
    58,771
    
    
    
    49,731
    
    
    
    1,812
    
    
    
    106,6902005
    
    
    54,113
    
    
    
    6,710
    
    
    
    2,052
    
    
    
    58,771
 Exhibits
  116




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##### Table of Contents



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) 117




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##### Table of Contents



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

Robert L. Butchofsky
    
    President, Chief Executive Officer and Director
(Principal Executive Officer)
    
    February 27, 2008/s/ Cameron R. Nelson

Cameron R. Nelson
    
    Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    February 27, 2008/s/ C. Boyd Clarke

C. Boyd Clarke
    
    Chairman of the Board of Directors and Director
    
    February 27, 2008/s/ Bruce L.A. Carter

Bruce L.A. Carter
    
    Director
    
    February 27, 2008/s/ Peter A. Crossgrove

Peter A. Crossgrove
    
    Director
    
    February 27, 2008/s/ Philip B. Livingston

Philip B. Livingston
    
    Director
    
    February 27, 2008/s/ Ian J. Massey

Ian J. Massey
    
    Director
    
    February 27, 2008/s/ Alan C. Mendelson

Alan C. Mendelson
    
    Director
    
    February 27, 2008/s/ Richard R. Vietor

Richard R. Vietor
    
    Director
    
    February 27, 2008/s/ Jack L. Wood

Jack L. Wood
    
    Director
    
    February 27, 2008
 118




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##### Table of Contents



Exhibit Index
  Exhibit
    
    Description
    
    Location2.1
    
    Asset Purchase Agreement, dated December 20,
2006, by and among Tolmar, Inc., Dillford
Company S.A. and QLT USA, Inc. (1)
    
    Exhibit 2.1 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006.2.2
    
    Agreement and Plan of Merger by and among QLT
Inc, Aspen Acquisition Corp. and Atrix
Laboratories, Inc. dated as of June 14, 2004.
    
    Annex A to the
Companys Joint Proxy
Statement/Prospectus
on Form S-4 dated
October 14, 2004.2.3
    
    Agreement and Plan of Merger dated October 8,
2007, by and among the Company, 3088923, Inc.,
ForSight Newco II, Inc. and the Stockholders
Representatives named therein.(1)
    
    Exhibit 2.1 to the
Companys Current
Report on Form 8-K
dated October 8, 2007
and filed with the
Commission on October
11, 2007.3.0
    
    Articles
    
    Exhibit 3.2 to the
Companys Current
Report on Form 8-K
dated May 25, 2005 and
filed with the
Commission on June 1,
2005.4.1
    
    Shareholder Rights Plan Agreement, as amended
and restated, dated as of April 8, 2005, between
QLT Inc. and ComputerShare Trust Company of
Canada.
    
    Exhibit 41 to the
Companys Current
Report on Form 8-K
dated April 8, 2005
and filed with the
Commission on
April 13, 2005.4.2
    
    Registration Rights Agreement, as amended and
restated, dated as of December 17, 2004 by and
between QLT Inc., Elan International Services,
Ltd., and Elan Pharmaceutical Investments III,
Ltd.
    
    Exhibit 4.2 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
March 31, 2005.10.1
    
    Agreement, dated April 8, 1982, between Dr.
Julia Levy, Quadra Logic Technologies Inc. and
the University of British Columbia.
    
    Exhibit to the
Companys Registration
Statement on Form F-1
(File No. 33-31222)
filed with the
Commission on
September 25, 1989.10.2
    
    Agreement, dated January 15, 1988, between Dr.
David Dolphin, Quadra Logic Technologies Inc.
and the University of British Columbia.
    
    Exhibit to the
Companys Annual
Report on Form 20-F
for the year ended
December 31, 1988.10.3
    
    Royalty Adjustment and Stock Option Agreement
dated August 10, 1989, between Quadra Logic
Technologies Inc. and Dr. David Dolphin.
    
    Exhibit to the
Companys Amendment
No. 1 to the
Registration Statement
on Form F-1 dated
November 6, 1989.10.4
    
    Royalty Agreement, dated December 15, 1987,
between Quadra Logic Technologies Inc. and Dr.
David Dolphin.
    
    Exhibit to the
Companys Amendment
No. 1 to the
Registration Statement
on Form F-1 dated
November 6, 1989.10.5
    
    1998 QLT Incentive Stock Option Plan.
    
    Exhibit 10.68 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998.10.6*
    
    2000 QLT Incentive Stock Option Plan (as amended
in 2002); (formerly numbered 10.70).
    
    Exhibit to the
Companys Registration
Statement on Form S-8
filed with the
Commission on
September 20, 2002.10.7*
    
    Employment Agreement dated December 18, 2001
between QLT Inc. and Paul J. Hastings.
    
    Exhibit 10.77 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2002.10.8*
    
    Employment Agreement dated May 19, 2000 between
QLT Inc. and Alain Curaudeau.
    
    Exhibit 10.80 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2002.
 119




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##### Table of Contents



Exhibit
    
    Description
    
    Location10.9
    
    PDT Product Development, Manufacturing and
Distribution Agreement, dated July 1, 1994,
between Quadra Logic Technologies Inc. and CIBA
Vision AG, Hettlingen (now Novartis Pharma AG).
    
    Exhibit to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1995.10.10
    
    BPD-MA Verteporfin Supply Agreement, dated March
12, 1999 between QLT PhotoTherapeutics Inc. and
Parkedale Pharmaceuticals, Inc. (1)
    
    Exhibit 10.54 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998.10.11
    
    BPD-MA Presome Supply Agreement, dated February
26, 1998, between QLT PhotoTherapeutics Inc. and
Nippon Fine Chemical Co., Ltd. (1)
    
    Exhibit 10.55 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998.10.12
    
    BPD-MA Supply Agreement, dated December 11,
1998, between QLT PhotoTherapeutics Inc. and
Raylo Chemicals Limited. (1)
    
    Exhibit 10.56 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998.10.13
    
    License Agreement, dated December 8, 1998,
between QLT PhotoTherapeutics Inc. and The
General Hospital Corporation. (1)
    
    Exhibit 10.63 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998.10.14
    
    Amending Agreement to PDT Product Development,
Manufacturing and Distribution Agreement dated
as of July 23, 2001 between Novartis Ophthalmics
AG and QLT Inc. (1)
    
    Exhibit 10.74 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
September 30, 2002.10.15
    
    Amending Agreement to PDT Product Development,
Manufacturing and Distribution Agreement entered
into July 22, 2003 between Novartis Ophthalmics
AG (now a division of Novartis Pharma AG) and
QLT Inc.
    
    Exhibit 10.77 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2003.10.16
    
    Agreement and Plan of Merger by and among QLT
Inc, Aspen Acquisition Corp. and Atrix
Laboratories, Inc. dated as of June 14, 2004.
    
    See Exhibit 2.2 above.10.17
    
    License and Royalty Agreement, dated as of
August 8, 2000 between Atrix Laboratories, Inc.
and Pfizer Inc.
    
    Exhibit 99.3 to Atrix
Laboratories, Inc.s
Current Report on Form
8-K dated August 8,
2000 and filed with
the Commission on
September 7, 2000.10.18
    
    Collaboration, Development and Supply Agreement
dated as of August 28, 2000 between Atrix
Laboratories, Inc. and Sandoz, Inc. (formerly
Geneva Pharmaceuticals, Inc.)
    
    Exhibit 10.13 to Atrix
Laboratories, Inc.s
Quarterly Report on
Form 10-Q for the
quarter ended
September 30, 2000.10.19
    
    Collaboration, License and Supply Agreement
dated as of December 8, 2000 between Atrix
Laboratories, Inc. and Sanofi-Synthelabo Inc. as
amended through February 15, 2007. (1)
    
    Exhibit 10.19 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006.10.20
    
    Collaboration, License and Supply Agreement,
dated as of April 4, 2001, between Atrix
Laboratories, Inc. and MediGene as amended
through May 17, 2006. (1)
    
    Exhibit 10.20 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006.10.21*
    
    Separation Letter Agreement with Michael J. Doty.
    
    Exhibit 10.1 to the
Companys Current
Report on Form 8-K
dated April 15, 2005
and filed with the
Commission on
April 21, 2005.10.22*
    
    QLT Inc. 2005 Cash Incentive Plan.
    
    Exhibit 10.01 to the
Companys Current
Report on Form 8-K
dated May 10, 2005 and
filed with the
Commission on May 16,
2005.
 120




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Exhibit
    
    Description
    
    Location10.23*
    
    Deferred Share Unit Plan For Non-Employee
Directors.
    
    Exhibit 10.32 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2005.10.24*
    
    Change Of Control Letter Agreement between QLT
Inc. and Cameron Nelson.
    
    Exhibit 10.34 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2005.10.25*
    
    Letter Agreement dated September 23, 2005
between QLT Inc. and Paul J. Hastings.
    
    Exhibit 10.1 to the
Companys Current
Report on Form 8-K
dated September 23,
2005 and filed with
the Commission on
September 26, 2005.10.26*
    
    Employment Agreement dated September 26, 2005
between QLT Inc. and Robert L. Butchofsky.
    
    Exhibit 10.35 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
September 30, 2005.10.27*
    
    Change of control letter agreement dated
September 26, 2005 for Robert L. Butchofsky.
    
    Exhibit 10.36 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
September 30, 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 QLT Inc. and Dr. Mohammad Azab.
    
    Exhibit 10.40 to the
Companys Annual
Report on 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, 2005 between QLT USA, Inc. and
Michael R. Duncan.
    
    Exhibit 10.42 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2005.10.32*
    
    Form of Stock Option Agreement for stock option
grants to senior employees and executive
officers.
    
    Exhibit 10.43 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2006.10.33*
    
    Employment Agreement dated May 31, 2006 between
QLT Inc. and Peter J. OCallaghan.
    
    Exhibit 10.44 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2006.10.34*
    
    Change of Control Agreement dated May 31, 2006
between QLT Inc. and Peter J. OCallaghan.
    
    Exhibit 10.45 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2006.10.35
    
    Settlement, Release and Patent License dated
February 9, 2007 by and among Takeda
Pharmaceutical Company Limited, Wako Pure
Chemical Industries, Ltd., TAP Pharmaceutical
Products Inc., Abbott Laboratories, Limited -
Laboratories Abbott, Limited, QLT USA, Inc., and
Sanofi-Synthelabo, Inc.
    
    Exhibit 10.35 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006.10.36
    
    Eligard® Manufacturing and Supply Agreement,
dated December 22, 2006, between Tolmar, Inc.
and QLT USA, Inc. (1)
    
    Exhibit 10.36 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006.10.37
    
    Amended and Restated Contribution Agreement,
dated February 9, 2007, between
Sanofi-Synthelebo, Inc. and QLT USA, Inc. (1)
    
    Exhibit 10.37 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006.
 121




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##### Table of Contents



Exhibit
    
    Description
    
    Location10.38
    
    Settlement Agreement dated March 2, 2007, by and
between the Company and Massachusetts Eye and
Ear Infirmary.(1)
    
    Exhibit 10.4 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
March 31, 2007.10.39
    
    Separation Letter Agreement with Alain Curaudeau.
    
    Exhibit 10.1 to the
Companys Current
Report on Form 8-K
dated January 18, 2008
and filed with the
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)
    
    Filed herewith10.41*
    
    2007 Cash Incentive Bonus Plan for Executive
Officers.
    
    Item 1.01 of the
Companys Current
Report on Form 8-K
dated February 27,
2007 and filed with
the Commission on
March 3, 2007.10.42*
    
    2007 Cash Incentive Compensation Structure for
Executive Officers.
    
    Item 5.02 of the
Companys Current
Report on Form 8-K
dated May 17, 2007 and
filed with the
Commission on May 23,
2007.10.43*
    
    2007 Base Salary for Chief Executive Officer.
    
    Item 5.02 of the
Companys Current
Report on Form 8-K
dated April 16, 2007
and filed with the
Commission on April
20, 2007.11
    
    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 adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002: Robert L.
Butchofsky, President and Chief Executive
Officer.
    
    Filed herewith.31.2
    
    Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002: Cameron R. Nelson,
Vice President, Finance, and Chief Financial
Officer.
    
    Filed herewith.32.1
    
    Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002: Robert L.
Butchofsky, President and Chief Executive
Officer.
    
    Filed herewith.32.2
    
    Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002: Cameron R. Nelson,
Vice President, Finance, and Chief Financial
Officer.
    
    Filed herewith.
 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. 122