##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 0-17082
 QLT INC.
 (Exact name of registrant as specified in its charter)
 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)
 (604) 707-7000
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



QLT INC.
 QUARTERLY REPORT ON FORM 10-Q
March 31, 2008
 TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONITEM1.
    

FINANCIAL
STATEMENTS
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of
March 31, 2008 and December 31, 2007
    
    
    1Unaudited Condensed Consolidated Statements of Income for the three
months ended March 31, 2008 and March 31, 2007
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2008 and March 31, 2007
    
    
    3Unaudited Condensed Consolidated Statement of Changes in Shareholders Equity and Comprehensive
Income for the three months ended March 31, 2008
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    52.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    183.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    254.
    
    CONTROLS AND PROCEDURES
    
    
    26PART II  OTHER INFORMATION1.
    
    LEGAL PROCEEDINGS
    
    
    271A.
    
    RISK FACTORS
    
    
    272.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    276.
    
    EXHIBITS
    
    
    27




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##### 



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
QLT Inc.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (In thousands of U.S. dollars)
    
    March 31, 2008
    
    December 31, 2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    119,967
    
    
    $
    126,731Restricted cash
    
    
    122,416
    
    
    
    123,495Accounts receivable
    
    
    25,266
    
    
    
    25,257Income taxes receivable
    
    
    47,059
    
    
    
    48,421Inventories (Note 2)
    
    
    14,820
    
    
    
    18,511Current portion of deferred income tax assets
    
    
    18,244
    
    
    
    19,392Other (Note 3)
    
    
    15,011
    
    
    
    11,930362,783
    
    
    
    373,737Property, plant and equipment
    
    
    10,372
    
    
    
    13,210Assets held for sale
    
    
    38,575
    
    
    
    39,540Deferred income tax assets
    
    
    8,237
    
    
    
    7,041Goodwill
    
    
    93,754
    
    
    
    94,903Long-term inventories and other assets (Note 4)
    
    
    22,256
    
    
    
    20,556$
    535,977
    
    
    $
    548,987LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    7,652
    
    
    $
    8,486Accrued restructuring charge (Note 8)
    
    
    1,300
    
    
    
    153Accrued liabilities (Note 5)
    
    
    123,765
    
    
    
    123,294Convertible debt (Note 6)
    
    
    172,500
    
    
    
    172,500Current portion of deferred revenue
    
    
    8,138
    
    
    
    8,431Current portion of deferred income tax liabilities
    
    
    9,444
    
    
    
    11,291322,799
    
    
    
    324,155Uncertain tax position liabilities
    
    
    2,168
    
    
    
    2,070Deferred revenue
    
    
    2,571
    
    
    
    2,939327,538
    
    
    
    329,164CONTINGENCIES (Note 13)SHAREHOLDERS EQUITYShare capital (Note 9)Authorized500,000,000 common shares without par value5,000,000 first preference shares without
par value, issuable
in seriesIssued and outstandingCommon shares
    
    
    702,221
    
    
    
    702,221March 31, 2008  74,620,328 sharesDecember 31, 2007  74,620,328 sharesAdditional paid in-capital
    
    
    121,134
    
    
    
    119,779Accumulated deficit
    
    
    (724,926
    )
    
    
    (714,455
    )Accumulated other comprehensive income
    
    
    110,010
    
    
    
    112,278208,439
    
    
    
    219,823$
    535,977
    
    
    $
    548,987
  1




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##### 



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 Three months endedMarch 31,(In thousands of U.S. dollars except share and per share information)
    
    2008
    
    2007RevenuesNet product revenue (Note 10)
    
    $
    11,908
    
    
    $
    20,560Costs and expensesCost of sales
    
    
    2,130
    
    
    
    3,476Accrued cost of sales re: MEEI (Note 13)
    
    
    1,093
    
    
    
    Research and development
    
    
    8,047
    
    
    
    8,428Selling, general and administrative
    
    
    6,541
    
    
    
    5,312Depreciation
    
    
    1,022
    
    
    
    1,293Restructuring (Note 8)
    
    
    7,434
    
    
    
    37326,267
    
    
    
    18,882Operating (loss) income
    
    
    (14,359
    )
    
    
    1,678Investment and other income (expense)Net foreign exchange gains
    
    
    254
    
    
    
    25Interest income
    
    
    2,318
    
    
    
    3,904Interest expense
    
    
    (3,028
    )
    
    
    (1,582
    )Other gains
    
    
    153
    
    
    
    1,152(303
    )
    
    
    3,499(Loss) income from continuing operations before income taxes
    
    
    (14,662
    )
    
    
    5,177Recovery (provision) for income taxes
    
    
    2,111
    
    
    
    (1,687
    )(Loss) income from continuing operations
    
    
    (12,551
    )
    
    
    3,490Income from discontinued operations, net of income taxes (Note 11)
    
    
    2,080
    
    
    
    1,373Net (loss) income
    
    $
    (10,471
    )
    
    $
    4,863Basic net (loss) income per common shareContinuing operations
    
    $
    (0.17
    )
    
    $
    0.05Discontinued operations
    
    
    0.03
    
    
    
    0.02Net (loss) income
    
    $
    (0.14
    )
    
    $
    0.06Diluted net (loss) income per common shareContinuing operations
    
    $
    (0.17
    )
    
    $
    0.05Discontinued operations
    
    
    0.03
    
    
    
    0.02Net (loss) income
    
    $
    (0.14
    )
    
    $
    0.06Weighted average number of common shares outstanding (thousands)Basic
    
    
    74,620
    
    
    
    75,283Diluted
    
    
    74,620
    
    
    
    75,375
 2




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##### 



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2008
    
    2007Cash used in operating activitiesNet (loss) income
    
    $
    (10,471
    )
    
    $
    4,863Adjustments to reconcile net (loss) income to net cash
from operating activitiesDepreciation
    
    
    1,022
    
    
    
    1,584Share based compensation
    
    
    1,355
    
    
    
    889Amortization of deferred financing expenses
    
    
    343
    
    
    
    294Unrealized foreign exchange loss
    
    
    3,993
    
    
    
    1,097Tax loss utilization
    
    
    1,204
    
    
    
    1,360Interest earned on restricted cash
    
    
    (1,228
    )
    
    
    Deferred income taxes
    
    
    (2,240
    )
    
    
    93Trading securities
    
    
    
    
    
    
    58,357Loss on sale of property, plant and equipment
    
    
    17
    
    
    
    Impairment of property, plant and equipment
    
    
    1,582
    
    
    
    Accrued cost of sales and interest re: MEEI
    
    
    2,478
    
    
    
    Changes in non-cash operating assets and liabilitiesAccounts receivable
    
    
    (40
    )
    
    
    8,151Inventories
    
    
    1,323
    
    
    
    (2,337
    )Other current assets
    
    
    (3,767
    )
    
    
    (2,501
    )Accounts payable
    
    
    (869
    )
    
    
    (379
    )Income taxes payable
    
    
    185
    
    
    
    1,012Accrued restructuring charge
    
    
    1,175
    
    
    
    (1,061
    )Other accrued liabilities
    
    
    (1,774
    )
    
    
    (119,034
    )Deferred revenue
    
    
    (481
    )
    
    
    (2,313
    )(6,193
    )
    
    
    (49,925
    )Cash provided by investing activitiesShort-term investment securities
    
    
    
    
    
    
    16,435Restricted cash
    
    
    2,307
    
    
    
    1,689Purchase of property, plant and equipment
    
    
    (182
    )
    
    
    (871
    )Other acquisition related costs.
    
    
    (30
    )
    
    
    2,095
    
    
    
    17,253Cash provided by financing activitiesIssuance of common shares
    
    
    
    
    
    
    919
    
    
    
    919Effect of exchange rate changes on cash and cash equivalents
    
    
    (2,666
    )
    
    
    286Net decrease in cash and cash equivalents
    
    
    (6,764
    )
    
    
    (31,467
    )Cash and cash equivalents, beginning of period
    
    
    126,731
    
    
    
    299,053Cash and cash equivalents, end of period
    
    $
    119,967
    
    
    $
    267,586Supplementary cash flow information:Interest paid
    
    $
    2,588
    
    
    $
    2,753Income taxes paid
    
    
    23
    
    
    
    
 3




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##### 



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY  (Unaudited)
 AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TotalCommon Shares
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity(All amounts except share and per share information are expressed in thousands of U.S. dollars)Balance at December 31,
2006
    
    
    75,188,980
    
    
    $
    708,206
    
    
    $
    114,724
    
    
    $
    83,535
    
    
    $
    (603,251
    )
    
    
    
    
    
    $
    303,214Adjustment for the
adoption of FASB
Interpretation No. 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,207
    )
    
    
    
    
    
    
    (1,207
    )Exercise of stock
options at prices
ranging from CAD $7.79
to CAD $9.84 per share
and U.S. $2.89 - U.S.
$9.29 per share
    
    
    181,348
    
    
    
    2,597
    
    
    
    (1,344
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,253Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,696Common share repurchase
    
    
    (750,000
    )
    
    
    (8,582
    )
    
    
    2,703
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,879
    )Other comprehensive loss:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,728
    
    
    
    
    
    
    $
    28,728
    
    
    
    28,728Unrealized gain on
available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    15Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109,997
    )
    
    
    (109,997
    )
    
    
    (109,997
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81,254
    )
    
    
    Balance at December 31,
2007
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    119,779
    
    
    $
    112,278
    
    
    $
    (714,455
    )
    
    
    
    
    
    $
    219,823Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,355Other comprehensive loss:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,268
    )
    
    
    
    
    
    $
    (2,268
    )
    
    
    (2,268
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,471
    )
    
    
    (10,471
    )
    
    
    (10,471
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,739
    )
    
    
    Balance at March 31, 2008
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    121,134
    
    
    $
    110,010
    (1)
    
    $
    (724,926
    )
    
    
    
    
    
    $
    208,439
 
 (1)
    
    At March 31, 2008 our accumulated other comprehensive income is entirely related to cumulative
translation adjustments from the application of U.S. dollar reporting.  4




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##### 



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Business
 ® ® ®
 Basis of Presentation
    Principles of Consolidation
  Use of Estimates
  Reporting Currency and Foreign Currency Translation
  5




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##### 



Segmented Information
  Inventories
  Long-lived Assets
  Accounting
for the Impairment or Disposal of Long-lived Assets.
 Goodwill Impairment
 Goodwill and Other
Intangibles
 Revenue Recognition
 Net Product Revenues
 ®
  6




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##### 



®
  Net Royalties
 ®
  Assets Held for Sale and Discontinued Operations
  Accounting for the Impairment or Disposal of
Long-Lived Assets
 Contingencies
  Net Income Per Common Share
   7




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##### 



Three months ended(In thousands of U.S. dollars, except
    
    March 31,
    
    March 31,share and per share data)
    
    2008
    
    2007Numerator:(Loss) income from continuing operations
    
    $
    (12,551
    )
    
    $
    3,490Income from discontinued operations, net
of income taxes
    
    
    2,080
    
    
    
    1,373Net (loss) income
    
    $
    (10,471
    )
    
    $
    4,863Effect of dilutive securities:Convertible senior notes  interest
expense
    
    
    
    
    
    
    Adjusted (loss) income
    
    $
    (10,471
    )
    
    $
    4,863Denominator:(thousands)Weighted average common shares outstanding
    
    
    74,620
    
    
    
    75,283Effect of dilutive securities:Stock options
    
    
    
    
    
    
    92Convertible senior notes
    
    
    
    
    
    
    Diluted potential common shares
    
    
    
    
    
    
    92Diluted weighted average common shares
outstanding
    
    
    74,620
    
    
    
    75,375Basic net (loss) income per common shareContinuing operations
    
    $
    (0.17
    )
    
    $
    0.05Discontinued operations
    
    
    0.03
    
    
    
    0.02Net (loss) income
    
    $
    (0.14
    )
    
    $
    0.06Diluted net (loss) income per common shareContinuing operations
    
    $
    (0.17
    )
    
    $
    0.05Discontinued operations
    
    
    0.03
    
    
    
    0.02Net (loss) income
    
    $
    (0.14
    )
    
    $
    0.06
  Fair Value of Financial Assets and Liabilities
  Recently Issued Accounting Standards
 Fair Value Measurements Effective Date of FASB Statement No. 157,
 8




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##### 



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
 Accounting for Derivative Instruments and Hedging
Activities
 9




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##### 



2. INVENTORIES
 (In thousands of U.S. dollars)
    March 31, 2008
    December 31, 2007Raw materials and supplies
    
    $
    13,385
    
    
    $
    12,653Work-in-process
    
    
    31,018
    
    
    
    33,819Finished goods
    
    
    11
    
    
    
    67Provision for excess inventory
    
    
    (2,942
    )
    
    
    (3,020
    )Provision for non-completion of product inventory
    
    
    (4,553
    )
    
    
    (4,613
    )$
    36,919
    
    
    $
    38,906Less: Long-term inventory, net of provisions
    
    
    (22,099
    )
    
    
    (20,395
    )$
    14,820
    
    
    $
    18,511
   3. OTHER CURRENT ASSETS
 (In thousands of U.S. dollars)
    
    March 31, 2008
    
    December 31, 2007Inventory in transit held by Novartis
    
    $
    8,896
    
    
    $
    7,995Foreign exchange contracts
    
    
    3,222
    
    
    
    1,236Deferred financing expenses
    
    
    504
    
    
    
    863Prepaid expenses and other
    
    
    2,389
    
    
    
    1,836$
    15,011
    
    
    $
    11,930
   4. LONG-TERM INVENTORIES AND OTHER ASSETS
 (In thousands of U.S. dollars)
    
    March 31, 2008
    
    December 31, 2007Inventory, net of provisions
    
    $
    22,099
    
    
    $
    20,395Other
    
    
    157
    
    
    
    161$
    22,256
    
    
    $
    20,556
 10




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##### 



5. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    March 31, 2008
    
    December 31, 2007Royalties
    
    $
    782
    
    
    $
    1,033Compensation
    
    
    2,926
    
    
    
    5,263Interest
    
    
    247
    
    
    
    1,560Litigation charge  MEEI judgment (Note 13)
    
    
    117,511
    
    
    
    115,027Provision for Eligard sales pricing rebate
    
    
    2,033
    
    
    
    Other
    
    
    266
    
    
    
    411$
    123,765
    
    
    $
    123,294
 6. CONVERTIBLE DEBT
  7. FOREIGN EXCHANGE FACILITIES
   8. RESTRUCTURING CHARGE
  11




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##### 



EmployeeTermination
    
    Asset(In thousands of U. S. dollars)
    
    costs(1)
    
    Write-downs
    
    TotalBalance at December 31, 2007(2)
    
    $
    153
    
    
    $
    
    
    
    $
    153Restructuring charge
    
    
    5,948
    
    
    
    1,486
    
    
    
    7,434Foreign exchange
    
    
    (24
    )
    
    
    
    
    
    
    (24
    )Cash payments
    
    
    (4,240
    )
    
    
    
    
    
    
    (4,240
    )Non-cash portion(3)
    
    
    (537
    )
    
    
    (1,486
    )
    
    
    (2,023
    )Balance at March 31, 2008
    
    $
    1,300
    
    
    $
    
    
    
    $
    1,300
 
 (1)
    
    Costs include severance, termination benefits, and outplacement support.(2)
    
    Opening balance represents remaining balance from previous restructurings.(3)
    
    Non-cash portion related to employee termination costs is stock based compensation. 9. SHARE CAPITAL
       12




---



##### 



Three months endedMarch 31,
    
    March 31,(In thousands of U.S. dollars, except share information)
    
    2008
    
    2007Cost of sales
    
    $
    7
    
    
    $
    Research and development
    
    
    328
    
    
    
    469Selling, general and administrative
    
    
    423
    
    
    
    265Restructuring charge
    
    
    537
    
    
    
    Discontinued operations
    
    
    60
    
    
    
    155Stock-based compensation expense
before income taxes
    
    
    1,355
    
    
    
    889Related income tax benefits
    
    
    (26
    )
    
    
    (33
    )Stock-based compensation, net of
income taxes
    
    $
    1,329
    
    
    $
    856
  10. NET PRODUCT REVENUE
  For the three months endedMarch 31,(In thousands of U.S. dollars)
    
    2008
    
    2007Visudyne® sales by Novartis
    
    $
    36,480
    
    
    $
    61,235Less: Marketing and distribution costs
    
    
    (18,032
    )
    
    
    (26,833
    )Less: Inventory costs
    
    
    (1,989
    )
    
    
    (3,086
    )Less: Royalties to third parties
    
    
    (779
    )
    
    
    (1,283
    )$
    15,680
    
    
    $
    30,033QLTs 50% share of Novartis net proceeds from
Visudyne® sales
    
    $
    7,840
    
    
    $
    15,017Add: Advance on inventory costs from Novartis
    
    
    1,355
    
    
    
    2,082Add: Royalties reimbursed to QLT
    
    
    797
    
    
    
    1,285Add: Other costs reimbursed to QLT
    
    
    1,916
    
    
    
    2,176Revenue from Visudyne® sales
    
    $
    11,908
    
    
    $
    20,560
  11. DISCONTINUED OPERATIONS
  13




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March 31,
    
    December 31,(In thousands of U.S. dollars)
    
    2008
    
    2007Building
    
    $
    29,289
    
    
    $
    30,067Land
    
    
    7,000
    
    
    
    7,187Equipment
    
    
    2,286
    
    
    
    2,286$
    38,575
    
    
    $
    39,540
  For the three months endedMarch 31,(In thousands of U.S. dollars)
    
    2008
    
    2007Net revenue
    
    $
    14,786
    
    
    $
    12,138Pretax income
    
    
    3,147
    
    
    
    2,220Income taxes
    
    
    (1,067
    )
    
    
    (847
    )Net income from discontinued operations
    
    $
    2,080
    
    
    $
    1,373
 12. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
     14




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Fair Value Measurements at March 31, 2008Carrying ValueMarch 31, 2008
    
    Level 1
    
    Level 2
    
    Level 3Assets:Cash and cash equivalents
    
    $
    119,967
    
    
    $
    37,010
    
    
    $
    82,957
    
    
    $
    Forward currency contracts
    
    
    3,222
    
    
    
    
    
    
    
    3,222
    
    
    
    Total
    
    $
    123,189
    
    
    $
    37,010
    
    
    $
    86,179
    
    
    $
    Liabilities:Convertible senior notes
    
    $
    172,500
    
    
    $
    
    
    
    $
    164,684
    
    
    $
    
 .
 Maturity Period
    
    Quantity (millions)
    
    Average PriceCanadian / U.S. dollar
forward contracts to buy USD
    
    
    2008
    
    
    USD 70.0
    
    0.9802 per USD
   13. CONTINGENCIES
   (a) Eligard Patent Litigation
  15




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##### 



(b) Patent Litigation with MEEI
 ®
     16




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##### 



(c) Litigation with Biolitec, Inc.
   17




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
 ® ® ®
  ®
  
    
    the sale of the assets 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 reductions in the future as assets
are divested.
   18




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##### 



RECENT DEVELOPMENTS
   RESULTS OF OPERATIONS
  Revenues
 Net Product Revenue
  For the three monthsended March 31,(In thousands of U.S. dollars)
    
    2008
    
    2007Visudyne® sales by Novartis
    
    $
    36,480
    
    
    $
    61,235Less: Marketing and distribution
costs(1)
    
    
    (18,032
    )
    
    
    (26,833
    )Less: Inventory costs(2)
    
    
    (1,989
    )
    
    
    (3,086
    )Less: Royalties to third parties(3)
    
    
    (779
    )
    
    
    (1,283
    )$
    15,680
    
    
    $
    30,033QLTs 50% share of Novartis net proceeds from
Visudyne® sales
    
    $
    7,840
    
    
    $
    15,017Add: Advance on inventory costs from
Novartis(4)
    
    
    1,355
    
    
    
    2,082Add: Royalties reimbursed to QLT(5)
    
    
    797
    
    
    
    1,285Add: Other costs reimbursed to QLT(6)
    
    
    1,916
    
    
    
    2,176Revenue from Visudyne® sales
    
    $
    11,908
    
    
    $
    20,560
 
 (1)
    
    Less: Marketing and distribution costs  19




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##### 



(2)
    
    Less: Inventory costs
  (3)
    
    Less: Royalties to third parties
  (4)
    
    Add: Advance on inventory costs from Novartis
  (5)
    
    Add: Royalties reimbursed to QLT
  (6)
    
    Add: Other costs reimbursed to QLT
   Costs and Expenses
 Cost of Sales
  Accrued Cost of Sales re: MEEI
  Research and Development
   20




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##### 




    
    changes in the regulatory environment,
    
    introduction of competing technologies and treatments,
    
    unexpected safety issues,
    
    patent application, maintenance and enforcement issues,
    
    changes in the commercial marketplace,
    
    difficulties in enrolling patients,
    
    delays in study progression, including regulatory delays,
    
    inability to develop cost effective manufacturing methods that comply with regulatory standards,
    
    uncertainties related to collaborative arrangements,
    
    environmental risks, and
    
    other factors discussed under Item 1A, Risk Factors.
  For the three monthsended March 31,(In thousands of U.S. dollars)
    
    2008
    
    2007Ocular
    
    $
    6,708
    
    
    $
    5,689Dermatology
    
    
    1,274
    
    
    
    2,527Other
    
    
    65
    
    
    
    212$
    8,047
    
    
    $
    8,428
 Selling, General and Administrative Expenses
  Restructuring Charge
   Investment and Other Income (Expense)
 Net Foreign Exchange Gains
  21




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##### 



For the three monthsended March 31,(In thousands of U.S. dollars)
    
    2008
    
    2007Cash and cash equivalents and short-term
investments
    
    $
    5,148
    
    
    $
    (1,552
    )U.S. dollar long-term debt
    
    
    (4,585
    )
    
    
    1,752Foreign exchange contracts
    
    
    2,059
    
    
    
    414Foreign currency receivables and payables
    
    
    (2,368
    )
    
    
    (589
    )Net foreign exchange gains
    
    $
    254
    
    
    $
    25
 Interest Income
  Interest Expense
  Income from Discontinued Operations
   LIQUIDITY AND CAPITAL RESOURCES
    22




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##### 




    
    A positive cash flow variance from the litigation settlement payment of $112.5 million
in 2007;
    
    A positive cash flow variance from higher foreign exchange gains of $3.8 million;
    
    A positive cash flow variance from lower operating and inventory related expenditures of
$3.8 million;
    
    A positive cash flow variance from higher cash receipts from Eligard product sales,
royalties and milestones of $1.1 million;
    
    A negative cash flow variance from the receipt of $1.0 million from the sale of the
non-U.S. rights of our BEMA technology in 2007.
    
    A negative cash flow variance from higher restructuring costs of $2.6 million;
    
    A negative cash flow variance from lower interest income of $2.7 million;
    
    A negative cash flow variance from lower cash receipts from Visudyne sales of $12.0
million; and
    
    A negative cash flow variance from the sale of trading securities of $58.4 million in
2007.
   Interest and Foreign Exchange Rates
     Maturity Period
    
    Quantity (millions)
    
    Average PriceCanadian / U.S. dollar
forward contracts to buy USD
    
    
    2008
    
    
    USD 70.0
    
    0.9802 per USD
 Contractual Obligations
   23




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##### 



Off-Balance Sheet Arrangements
   General
    CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  24




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##### 



Recently Issued and Recently Adopted Accounting Standards
  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 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 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 timing and ability to sell certain core and non-core
assets at prices acceptable to us or at all;
    
    our expectations regarding the amount of annual operating savings we could derive as a
result of our corporate restructure;
    
    the anticipated timing, cost and progress of the development of our technology
(including our punctal plug delivery system and our 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.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  25




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##### 



ITEM 4. CONTROLS AND PROCEDURES
       26




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##### 



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   Issuer Purchases of Equity SecuritiesTotal Number of
    
    Maximum NumberTotal
    
    
    
    
    
    Shares Purchased as
    
    of Shares that MayNumber of
    
    Average
    
    Part of Publicly
    
    Yet Be PurchasedShares
    
    Price Paid
    
    Announced Plans or
    
    Under the Plans orPeriod
    
    Purchased
    
    per Share
    
    Programs
    
    ProgramsJanuary 1, 2008 through January 31,
2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,961,993 sharesFebruary 1, 2008 through February
29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,961,993 sharesMarch 1, 2008 through March 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,961,993 sharesTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,961,993 shares
 
 ITEM 6. EXHIBITS
  27




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##### 



SIGNATURES
  QLT Inc.
(Registrant)Date: May 9, 2008
    By:
    /s/ Robert L. ButchofskyRobert L. ButchofskyPresident and  Chief Executive Officer
(Principal Executive Officer)Date: May 9, 2008
    By:
    /s/ Cameron R. NelsonCameron R. NelsonVice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer) 28




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##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    Rule 13a-14 (a) Certification of the Chief Executive Officer.31.2
    
    Rule 13a-14(a) Certification of the Chief Financial Officer.32.1
    
    Section 1350 Certification of the Chief Executive Officer.32.2
    
    Section 1350 Certification of the Chief Financial Officer.
 29