##### Table of Contents



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 September 30, 2011
 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.)101  887 Great Northern Way, Vancouver, B.C., Canada
    
    V5T 4T5(Address of principal executive offices)
    
    (Zip code)
 (604) 707-7000
 þ o
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



QLT INC.
 QUARTERLY REPORT ON FORM 10-Q
September 30, 2011
 TABLE OF CONTENTS
 ITEM
    
    PAGEPART I  FINANCIAL INFORMATION1. FINANCIAL STATEMENTS
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of
September 30, 2011 and December 31, 2010
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2011 and 2010
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the three and nine
months ended September 30, 2011 and 2010
    
    
    3Unaudited Condensed Consolidated Statement of Changes in Shareholders Equity
for the three and nine months ended September 30, 2011 and year ended December 31, 2010
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    52. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    133. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    224. CONTROLS AND PROCEDURES
    
    
    22PART II  OTHER INFORMATION1. LEGAL PROCEEDINGS
    
    
    231A. RISK FACTORS
    
    
    232. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    256. EXHIBITS
    
    
    26Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 QLT Inc.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (In thousands of U.S. dollars)
    
    September 30, 2011
    
    
    December 31, 2010ASSETSCurrent assetsCash and cash equivalents
    
    $
    203,955
    
    
    $
    209,478Accounts receivable
    
    
    10,244
    
    
    
    10,720Current portion of contingent consideration (Notes 9 and 11)
    
    
    37,908
    
    
    
    36,520Inventories (Note 2)
    
    
    2,681
    
    
    
    3,324Current portion of deferred income tax assets
    
    
    1,557
    
    
    
    3,643Current portion of mortgage receivable (Note 3)
    
    
    5,713
    
    
    
    2,004Prepaid and other
    
    
    2,043
    
    
    
    2,958264,101
    
    
    
    268,647Property, plant and equipment
    
    
    4,024
    
    
    
    3,035Deferred income tax assets
    
    
    1,550
    
    
    
    2,700Mortgage receivable (Note 3)
    
    
    
    
    
    
    6,013Long-term inventories and other assets (Note 4)
    
    
    12,233
    
    
    
    13,319Contingent consideration (Notes 9 and 11)
    
    
    70,966
    
    
    
    94,069$
    352,874
    
    
    $
    387,783LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    5,652
    
    
    $
    6,031Income taxes payable
    
    
    11
    
    
    
    716Accrued liabilities (Note 5)
    
    
    7,363
    
    
    
    6,323Deferred income tax liability
    
    
    82
    
    
    
    8213,108
    
    
    
    13,152Uncertain tax position liabilities
    
    
    1,664
    
    
    
    1,68714,772
    
    
    
    14,839SHAREHOLDERS EQUITYShare capital (Note 7)Authorized500,000,000 common shares without par value5,000,000 first preference shares without par value,
issuable
in seriesIssued and outstandingCommon shares
    
    
    462,429
    
    
    
    479,998September 30, 2011  49,363,310 sharesDecember 31, 2010  51,154,392 sharesAdditional paid-in capital
    
    
    294,173
    
    
    
    287,646Accumulated deficit
    
    
    (521,469
    )
    
    
    (497,669
    )Accumulated other comprehensive income
    
    
    102,969
    
    
    
    102,969338,102
    
    
    
    372,944$
    352,874
    
    
    $
    387,783
   1




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##### Table of Contents



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars except share and per share information)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010RevenuesNet product revenue (Note 8)
    
    $
    6,226
    
    
    $
    5,535
    
    
    $
    20,724
    
    
    $
    24,786Royalties
    
    
    3,355
    
    
    
    3,050
    
    
    
    10,441
    
    
    
    9,8919,581
    
    
    
    8,585
    
    
    
    31,165
    
    
    
    34,677Costs and expensesCost of sales
    
    
    2,673
    
    
    
    1,869
    
    
    
    7,422
    
    
    
    11,813Research and development
    
    
    11,282
    
    
    
    8,101
    
    
    
    32,334
    
    
    
    22,776Selling, general and administrative
    
    
    5,842
    
    
    
    5,354
    
    
    
    19,198
    
    
    
    15,238Depreciation
    
    
    328
    
    
    
    306
    
    
    
    1,040
    
    
    
    92220,125
    
    
    
    15,630
    
    
    
    59,994
    
    
    
    50,749Operating loss
    
    
    (10,544
    )
    
    
    (7,045
    )
    
    
    (28,829
    )
    
    
    (16,072
    )Investment and other incomeNet foreign exchange (losses) gains
    
    
    (298
    )
    
    
    409
    
    
    
    39
    
    
    
    78Interest income
    
    
    146
    
    
    
    602
    
    
    
    534
    
    
    
    1,599Fair value change in contingent consideration (Note 11)
    
    
    1,828
    
    
    
    5,206
    
    
    
    6,864
    
    
    
    10,167Other gains
    
    
    9
    
    
    
    24
    
    
    
    18
    
    
    
    3921,685
    
    
    
    6,241
    
    
    
    7,455
    
    
    
    12,236Loss before income taxes
    
    
    (8,859
    )
    
    
    (804
    )
    
    
    (21,374
    )
    
    
    (3,836
    )(Provision for) recovery of income taxes (Note 10)
    
    
    (247
    )
    
    
    107
    
    
    
    (2,426
    )
    
    
    5,527Net (loss) income
    
    $
    (9,106
    )
    
    $
    (697
    )
    
    $
    (23,800
    )
    
    $
    1,691Basic and diluted net (loss) income per common share
    
    $
    (0.18
    )
    
    $
    (0.01
    )
    
    $
    (0.47
    )
    
    $
    0.03Weighted average number of common shares outstanding (thousands)Basic
    
    
    49,732
    
    
    
    51,656
    
    
    
    50,425
    
    
    
    52,794Diluted
    
    
    49,732
    
    
    
    51,656
    
    
    
    50,425
    
    
    
    53,789
   2




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##### Table of Contents



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Cash (used in) generated by operating activitiesNet (loss) income
    
    $
    (9,106
    )
    
    $
    (697
    )
    
    $
    (23,800
    )
    
    $
    1,691Adjustments to reconcile net (loss) income to net cash
used in operating activitiesDepreciation
    
    
    328
    
    
    
    306
    
    
    
    1,040
    
    
    
    922Gain on sales of long-lived assets
    
    
    (8
    )
    
    
    
    
    
    
    (17
    )
    
    
    (317
    )Share-based compensation
    
    
    690
    
    
    
    618
    
    
    
    2,283
    
    
    
    1,872Unrealized foreign exchange gains (losses)
    
    
    206
    
    
    
    (425
    )
    
    
    102
    
    
    
    (113
    )Interest earned on note receivable
    
    
    
    
    
    
    (250
    )
    
    
    
    
    
    
    (741
    )Deferred income taxes
    
    
    395
    
    
    
    942
    
    
    
    3,276
    
    
    
    (4,337
    )Changes in non-cash operating assets and liabilitiesAccounts receivable
    
    
    3,101
    
    
    
    3,952
    
    
    
    815
    
    
    
    270Inventories
    
    
    309
    
    
    
    273
    
    
    
    1,323
    
    
    
    757Long-term deposits and other assets
    
    
    319
    
    
    
    592
    
    
    
    1,365
    
    
    
    4,569Accounts payable
    
    
    476
    
    
    
    383
    
    
    
    (256
    )
    
    
    73Income taxes receivable / payable
    
    
    1,945
    
    
    
    6,027
    
    
    
    (940
    )
    
    
    5,951Other accrued liabilities
    
    
    881
    
    
    
    684
    
    
    
    401
    
    
    
    12Deferred revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,244
    )(464
    )
    
    
    12,405
    
    
    
    (14,408
    )
    
    
    6,365Cash provided by investing activitiesNet proceeds from sale of property, plant and equipment
    
    
    8
    
    
    
    
    
    
    
    17
    
    
    
    Purchase of property, plant and equipment
    
    
    (530
    )
    
    
    (231
    )
    
    
    (2,069
    )
    
    
    (1,430
    )Net proceeds from sale of long-lived assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    317Proceeds from mortgage receivable
    
    
    
    
    
    
    3,822
    
    
    
    2,004
    
    
    
    3,822Proceeds from contingent consideration(1)
    
    
    8,192
    
    
    
    4,321
    
    
    
    21,715
    
    
    
    17,6447,670
    
    
    
    7,912
    
    
    
    21,667
    
    
    
    20,353Cash used in financing activitiesCommon shares repurchased, including fees
    
    
    (4,155
    )
    
    
    (8,668
    )
    
    
    (14,583
    )
    
    
    (17,082
    )Issuance of common shares
    
    
    66
    
    
    
    490
    
    
    
    1,838
    
    
    
    763(4,089
    )
    
    
    (8,178
    )
    
    
    (12,745
    )
    
    
    (16,319
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (262
    )
    
    
    152
    
    
    
    (37
    )
    
    
    71Net increase (decrease) in cash and cash equivalents
    
    
    2,855
    
    
    
    12,291
    
    
    
    (5,523
    )
    
    
    10,470Cash and cash equivalents, beginning of period
    
    
    201,100
    
    
    
    186,293
    
    
    
    209,478
    
    
    
    188,114Cash and cash equivalents, end of period
    
    $
    203,955
    
    
    $
    198,584
    
    
    $
    203,955
    
    
    $
    198,584Supplementary cash flow information:Interest paid
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Income taxes paid
    
    
    2
    
    
    
    
    
    
    
    938
    
    
    
    10
 (1)
    
    On October 1, 2009, all of the shares of QLT USA, Inc. (QLT USA) were sold to TOLMAR
Holding, Inc. (Tolmar) for up to an aggregate $230.0 million, plus cash on hand of $118.3
million. The purchase price included contingent consideration of $200.0 million which had a
fair value of $156.2 million on October 1, 2009, representing a non-cash investing activity.During the three months ended September 30, 2011, proceeds received on collection of the
contingent consideration totalled $10.0 million (2010  $9.5 million). Approximately $8.2 million
(2010  $4.3 million) of the proceeds were included within cash provided by investing activities.
The remaining $1.8 million (2010  $5.2 million) of the proceeds were recorded in the Statement
of Operations as the fair value change in contingent
consideration and were therefore reflected in the net (loss) income line item within cash used in
operating activities.During the nine months ended September 30, 2011, proceeds received on collection of the
contingent consideration totalled $28.6 million (2010  $27.8 million). Approximately $21.7
million (2010  $17.6 million) of the proceeds were included within cash provided by investing
activities. The remaining $6.9 million (2010  $10.2 million) of the proceeds were recorded in
the Statement of Operations as the fair value change in contingent consideration and were
therefore reflected in the net (loss) income line item within cash used in operating activities.
   3




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##### Table of Contents



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 (Unaudited)
 Accumulatedshare information are expressed in
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Totalshare information are expressed in
    
    Common Shares
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Shareholdersthousands of U.S. dollars)
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalance at January 1, 2010
    
    
    53,789,289
    
    
    $
    506,023
    
    
    $
    275,592
    
    
    $
    102,969
    
    
    $
    (480,130
    )
    
    $
    
    
    
    $
    404,454Exercise of stock
options, for cash, at
prices ranging from CAD
$2.44 to CAD $6.27 per
share
    
    
    265,585
    
    
    
    1,243
    
    
    
    (333
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    910Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,365Common share repurchase
    
    
    (2,900,482
    )
    
    
    (27,268
    )
    
    
    10,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,246
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,539
    )
    
    
    (17,539
    )
    
    
    (17,539
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,539
    )
    
    
    Balance at December 31,
2010
    
    
    51,154,392
    
    
    $
    479,998
    
    
    $
    287,646
    
    
    $
    102,969
    
    
    $
    (497,669
    )
    
    $
    
    
    
    $
    372,944Exercise of stock
options, for cash, at
prices ranging from CAD
$2.44 to CAD $6.27 per
share
    
    
    138,883
    
    
    
    1,002
    
    
    
    (288
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    714Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    955Common share repurchase
    
    
    (533,500
    )
    
    
    (5,006
    )
    
    
    1,331
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,675
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,549
    )
    
    
    (8,549
    )
    
    
    (8,549
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,549
    )
    
    
    Balance at March 31, 2011
    
    
    50,759,775
    
    
    $
    475,994
    
    
    $
    289,644
    
    
    $
    102,969
    
    
    $
    (506,218
    )
    
    $
    
    
    
    $
    362,389Exercise of stock
options, for cash, at
prices ranging from CAD
$2.44 to CAD $6.27 per
share
    
    
    196,996
    
    
    
    1,504
    
    
    
    (438
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,066Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    688Common share repurchase
    
    
    (1,006,572
    )
    
    
    (9,436
    )
    
    
    2,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,136
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,145
    )
    
    
    (6,145
    )
    
    
    (6,145
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,145
    )
    
    
    Balance at June 30, 2011
    
    
    49,950,199
    
    
    $
    468,062
    
    
    $
    292,194
    
    
    $
    102,969
    
    
    $
    (512,363
    )
    
    $
    
    
    
    $
    350,862Exercise of stock
options, for cash, at
prices ranging from CAD
$2.44 to CAD $6.27 per
share
    
    
    42,556
    
    
    
    264
    
    
    
    (76
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    681Common share repurchase
    
    
    (629,445
    )
    
    
    (5,897
    )
    
    
    1,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,523
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,106
    )
    
    
    (9,106
    )
    
    
    (9,106
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,106
    )
    
    
    Balance at September 30,
2011
    
    
    49,363,310
    
    
    $
    462,429
    
    
    $
    294,173
    
    
    $
    102,969
    (1)
    
    $
    (521,469
    )
    
    $
    
    
    
    $
    338,102
 (1)
    
    At September 30, 2011 our accumulated other comprehensive income is entirely related to
historical cumulative translation adjustments from the application of U.S. dollar reporting when
the functional currency of QLT Inc. was the Canadian dollar.
   4




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##### Table of Contents



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  1. CONDENSED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Business
 ®
 Basis of Presentation
   Principles of Consolidation
  Use of Estimates
  Segment Information
  Revenue Recognition
 Net Product Revenue
   5




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##### Table of Contents



Royalties
  Income Taxes
  Contingent Consideration
  Net (Loss) Income Per Common Share
   Three months ended
    
    
    Nine months ended(In thousands of U.S. dollars, except share and per share
    
    September 30,
    
    
    September 30,data)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Numerator:Net (loss) income
    
    $
    (9,106
    )
    
    $
    (697
    )
    
    $
    (23,800
    )
    
    $
    1,691Denominator: (thousands)Weighted average common shares outstanding
    
    
    49,732
    
    
    
    51,656
    
    
    
    50,425
    
    
    
    52,794Effect of dilutive securities:Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    995Diluted weighted average common shares outstanding
    
    
    49,732
    
    
    
    51,656
    
    
    
    50,425
    
    
    
    53,789Basic and diluted net (loss) income per common share
    
    $
    (0.18
    )
    
    $
    (0.01
    )
    
    $
    (0.47
    )
    
    $
    0.03
  Fair Value of Financial Assets and Liabilities
   6




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##### Table of Contents



Recently Issued Accounting Standards
 Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs.
 Presentation of Comprehensive Income
 Recently Adopted Accounting Standards
 Revenue Arrangements with Multiple Deliverables
 Milestone Method of
Revenue Recognition
   7




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##### Table of Contents



2. INVENTORIES
 (In thousands of U.S. dollars)
    
    September 30, 2011
    
    
    December 31, 2010Raw materials and supplies
    
    $
    56
    
    
    $
    74Work-in-process
    
    
    26,653
    
    
    
    28,045Finished goods
    
    
    416
    
    
    
    274Provision for excess inventory
    
    
    (11,085
    )
    
    
    (11,077
    )Provision for non-completion of inventory
    
    
    (2,185
    )
    
    
    (2,185
    )$
    13,855
    
    
    $
    15,131Long-term inventory, net of provisions
    
    
    (11,174
    )
    
    
    (11,807
    )Current inventory
    
    $
    2,681
    
    
    $
    3,324
    3. MORTGAGE RECEIVABLE
  4. LONG-TERM INVENTORIES AND OTHER ASSETS
 (In thousands of U.S. dollars)
    
    September 30, 2011
    
    
    December 31, 2010Inventory, net of provisions
    
    $
    11,174
    
    
    $
    11,807Deposits and other
    
    
    1,059
    
    
    
    1,512$
    12,233
    
    
    $
    13,319
 5. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    September 30, 2011
    
    
    December 31, 2010Royalties
    
    $
    1,033
    
    
    $
    1,225Compensation
    
    
    3,836
    
    
    
    3,698Directors Deferred Share Units compensation
    
    
    1,710
    
    
    
    1,400Other
    
    
    784
    
    
    
    $
    7,363
    
    
    $
    6,323
  8




---



##### Table of Contents



6. FOREIGN EXCHANGE FACILITY
  7. SHARE CAPITAL
      Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Annualized volatility
    
    
    
    
    
    
    55.4
    %
    
    
    48.8
    %
    
    
    53.8
    %Risk-free interest rate
    
    
    
    
    
    
    2.1
    %
    
    
    2.1
    %
    
    
    2.3
    %Expected life (years)
    
    
    
    
    
    
    3.7
    
    
    
    3.7
    
    
    
    3.7
    9




---



##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Cost of sales
    
    $
    58
    
    
    $
    5
    
    
    $
    69
    
    
    $
    158Research and development
    
    
    369
    
    
    
    338
    
    
    
    1,100
    
    
    
    957Selling, general and administrative
    
    
    263
    
    
    
    275
    
    
    
    1,114
    
    
    
    757Stock-based compensation expense before
income taxes
    
    
    690
    
    
    
    618
    
    
    
    2,283
    
    
    
    1,872Related income tax benefits
    
    
    (22
    )
    
    
    (13
    )
    
    
    (58
    )
    
    
    (32
    )Stock-based compensation, net of income taxes
    
    $
    668
    
    
    $
    605
    
    
    $
    2,225
    
    
    $
    1,840
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Intrinsic value of stock options exercised
    
    $
    113
    
    
    $
    342
    
    
    $
    841
    
    
    $
    558Cash from exercise of stock options
    
    $
    188
    
    
    $
    490
    
    
    $
    1,968
    
    
    $
    763
  8. NET PRODUCT REVENUE
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010U.S. Visudyne sales by QLT
    
    $
    3,853
    
    
    $
    5,218
    
    
    $
    15,631
    
    
    $
    16,668Visudyne sales to Novartis
    
    
    2,026
    
    
    
    
    
    
    
    4,011
    
    
    
    6,988Add: Royalties reimbursed to QLT
    
    
    337
    
    
    
    308
    
    
    
    1,051
    
    
    
    999Add: Other costs reimbursed to QLT
    
    
    10
    
    
    
    9
    
    
    
    31
    
    
    
    131Net product revenue from Visudyne sales
    
    $
    6,226
    
    
    $
    5,535
    
    
    $
    20,724
    
    
    $
    24,786
  10




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010U.S.
    
    $
    3,853
    
    
    $
    5,218
    
    
    $
    15,631
    
    
    $
    16,668Europe
    
    
    5,729
    
    
    
    5,303
    
    
    
    19,856
    
    
    
    19,447Rest of World
    
    
    11,044
    
    
    
    9,945
    
    
    
    32,350
    
    
    
    30,010Worldwide
    
    $
    20,626
    
    
    $
    20,466
    
    
    $
    67,837
    
    
    $
    66,125
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2011
    
    
    2010
    
    
    2011
    
    
    2010U.S.
    
    
    19
    %
    
    
    25
    %
    
    
    23
    %
    
    
    25
    %Europe
    
    
    28
    %
    
    
    26
    %
    
    
    29
    %
    
    
    29
    %Rest of World
    
    
    53
    %
    
    
    49
    %
    
    
    48
    %
    
    
    46
    %Worldwide
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 9. CONTINGENT CONSIDERATION
 ®
 10. INCOME TAXES
  11. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
   11




---



##### Table of Contents



Carrying Value
    
    
    Fair Value Measurements at September 30, 2011(In thousands of U.S. dollars)
    
    September 30, 2011
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash and cash equivalents
    
    $
    203,955
    
    
    $
    203,955
    
    
    $
    
    
    
    $
    Contingent consideration(1)
    
    
    108,874
    
    
    
    
    
    
    
    
    
    
    
    108,874Total
    
    $
    312,829
    
    
    $
    203,955
    
    
    $
    
    
    
    $
    108,874
 (1)
    
    To estimate the fair value of contingent consideration at September 30, 2011, we used a
discounted cash flow model based on estimated timing and amount of future cash flows,
discounted using a cost of capital of 10% determined by management after considering
available market and industry information. Future cash flows were estimated by utilizing
external market research to estimate market size, to which we applied market share,
pricing, and foreign exchange assumptions based on historical sales data, expected future
competition and current exchange rates. If the discount rate were to increase by 1%, the
contingent consideration would decrease by $1.5 million, from $108.9 million to $107.4
million. If estimated future revenues were to decrease by 10%, the contingent
consideration would decrease by $1.7 million, from $108.9 million to $107.2 million.
  (In thousands of U.S. dollars)
    
    Level 3Balance at January 1, 2010
    
    $
    151,078Transfers to Level 3
    
    
    Settlements
    
    
    (36,982
    )Fair value change in contingent consideration
    
    
    16,493Balance at December 31, 2010
    
    $
    130,589Transfers to Level 3
    
    
    Settlements
    
    
    (11,172
    )Fair value change in contingent consideration
    
    
    2,282Balance at March 31, 2011
    
    $
    121,699Transfers to Level 3
    
    
    Settlements
    
    
    (7,386
    )Fair value change in contingent consideration
    
    
    2,753Balance at June 30, 2011
    
    $
    117,066Transfers to Level 3
    
    
    Settlements
    
    
    (10,020
    )Fair value change in contingent consideration
    
    
    1,828Balance at September 30, 2011
    
    $
    108,874
     12




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Note regarding Trademarks
  
    
    Avastin®is a registered trademark of Genentech, Inc.
 
    
    Eligard® is a registered trademark of Sanofi S.A.
 
    
    Lucentis® is a registered trademark of Genentech, Inc.
 
    
    Visudyne®is a registered trademark of Novartis AG.
 
    
    Xalatan®is a registered trademark of Pfizer Health AB.
  OVERVIEW
 ®
 Products, Revenues and Other Sources of Funds
   ®
  13




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##### Table of Contents



Research and Development
  QLT091001 orphan drug program for
the treatment of Leber Congenital Amaurosis and Retinitis Pigmentosa. cis
   cis
 Punctal Plug
Drug Delivery System for the treatment of Glaucoma. ®
   14




---



##### Table of Contents



RESULTS OF OPERATIONS
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars, except per share data)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Net (loss) income
    
    $
    (9,106
    )
    
    $
    (697
    )
    
    $
    (23,800
    )
    
    $
    1,691Basic and diluted net (loss) income per common share
    
    $
    (0.18
    )
    
    $
    (0.01
    )
    
    $
    (0.47
    )
    
    $
    0.03
  Revenues
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010U.S. Visudyne sales by QLT
    
    $
    3,853
    
    
    $
    5,218
    
    
    $
    15,631
    
    
    $
    16,668Visudyne sales to Novartis
    
    
    2,026
    
    
    
    
    
    
    
    4,011
    
    
    
    6,988Add: Royalties reimbursed to QLT(1)
    
    
    337
    
    
    
    308
    
    
    
    1,051
    
    
    
    999Add: Other costs reimbursed to QLT(2)
    
    
    10
    
    
    
    9
    
    
    
    31
    
    
    
    131Net product revenue from Visudyne sales
    
    $
    6,226
    
    
    $
    5,535
    
    
    $
    20,724
    
    
    $
    24,786
  (1)
    
    Royalties reimbursed to QLT
 This represents amounts we receive from Novartis in reimbursement for actual royalty expenses
we incur with third party licensors for sales of Visudyne outside of the U.S.
 (2)
    
    Other costs reimbursed to QLT
 This represents certain administrative expenses we incur on behalf of Novartis under the
Amended PDT Agreement.
    15




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010U.S.
    
    $
    3,853
    
    
    $
    5,218
    
    
    $
    15,631
    
    
    $
    16,668Europe
    
    
    5,729
    
    
    
    5,303
    
    
    
    19,856
    
    
    
    19,447Rest of World
    
    
    11,044
    
    
    
    9,945
    
    
    
    32,350
    
    
    
    30,010Worldwide
    
    $
    20,626
    
    
    $
    20,466
    
    
    $
    67,837
    
    
    $
    66,125
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2011
    
    
    2010
    
    
    2011
    
    
    2010U.S.
    
    
    19
    %
    
    
    25
    %
    
    
    23
    %
    
    
    25
    %Europe
    
    
    28
    %
    
    
    26
    %
    
    
    29
    %
    
    
    29
    %Rest of World
    
    
    53
    %
    
    
    49
    %
    
    
    48
    %
    
    
    46
    %Worldwide
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  
    
    we own and license additional U.S. patents covering lipid-based formulations of verteporfin
and approved uses of Visudyne that provide additional patent protection for Visudyne and do
not expire until, at the latest, 2015 and 2016, respectively;
 
    
    in Europe and Japan, the basic patents covering the verteporfin compound do not expire
until 2014 and additional patents and patent applications relating to lipid-based formulations
of verteporfin and approved uses of Visudyne do not expire until, at the latest, 2016 and
2017, respectively; and
 
    
    relative to the sale of many other biopharmaceutical products, Visudyne does not generate
significant revenue and the manufacturing process is complex, which may make Visudyne a less
desirable generic target.
 Royalties
   16




---



##### Table of Contents



Costs and Expenses
 Cost of Sales
  Research and Development
   
    
    inability to design devices to function as expected;
 
    
    delays or inability to formulate an active ingredient in an appropriate concentration to
deliver effective doses of a drug;
 
    
    changes in the regulatory environment;
 
    
    introduction of competing technologies and treatments;
 
    
    unexpected safety issues;
 
    
    patent application, maintenance and enforcement issues;
 
    
    inability to operate without infringing the proprietary rights of others;
 
    
    changes in the commercial marketplace;
 
    
    difficulty enrolling patients in, or keeping them in, our clinical studies;
 
    
    inadequate trial design to demonstrate safety and/or efficacy;
 
    
    delays in study progression, including study site, Institutional Review Board and
regulatory delays;
 
    
    positive trial results that may result in increased spending;
 
    
    failure to meet favorable study endpoints;
 
    
    inability to develop cost effective manufacturing methods that comply with regulatory
standards;
 
    
    inability to attract personnel or retain personnel with appropriate expertise;
 
    
    inability to manufacture sterile supplies necessary for composition of products;
 
    
    uncertainties related to collaborative arrangements;
 
    
    environmental risks; and
 
    
    other factors referenced under Part II, Item 1A, Risk Factors.
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(In thousands of U.S. dollars)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Ocular
    
    $
    11,282
    
    
    $
    8,101
    
    
    $
    32,334
    
    
    $
    22,530Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246$
    11,282
    
    
    $
    8,101
    
    
    $
    32,334
    
    
    $
    22,776
  17




---



##### Table of Contents



Selling, General and Administrative Expenses
  Investment and Other Income
 Net Foreign Exchange (Losses) Gains
  Interest Income
  Fair Value Change in Contingent Consideration
   Income Taxes
   18




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 General
   Sources and Uses of Cash
   
    
    A negative operating cash flow variance from lower net tax refunds of $5.1 million;
 
    
    A negative operating cash flow variance from higher operating and inventory related
expenditures of $3.9 million;
 
    
    A negative operating cash flow variance from proceeds related to the fair value change
in contingent consideration of $3.4 million; and
 
    
    A negative operating cash flow variance from lower investment and other income of $0.5
million.
    
    
    A negative operating cash flow variance from higher operating and inventory related
expenditures of $12.1 million;
 
    
    A negative operating cash flow variance from lower net tax refunds of $6.1 million;
 
    
    A negative operating cash flow variance from proceeds related to the fair value change
in contingent consideration of $3.3 million;
 
    
    A negative operating cash flow variance from lower investment and other income of $1.1
million;
 
    
    A positive operating cash flow variance from higher foreign exchange gains of $0.5
million; and
 
    
    A positive operating cash flow variance from higher cash receipts from product sales and
royalties of $1.3 million.
   19




---



##### Table of Contents



Interest and Foreign Exchange Rates
    Contractual Obligations
  Off-Balance Sheet Arrangements
   Recently Issued and Recently Adopted Accounting Standards
  Outstanding Share Data
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   20




---



##### Table of Contents



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    levels of future sales of Visudyne, including the impact of competition, loss of patent
protection and limited commercial supply and technical support for laser devices required
for Visudyne therapy;
 
    
    our ability to effectively market and sell Visudyne in the U.S.;
 
    
    the ability of Novartis to effectively market and sell Visudyne in countries outside the
U.S.;
 
    
    our continued ability to supply Visudyne to our customers;
 
    
    our expectations regarding Visudyne label changes and reimbursement;
 
    
    receipt of all or part of the contingent consideration pursuant to the stock purchase
agreement entered into with Tolmar, which is based on anticipated levels of future sales of
Eligard;
 
    
    unanticipated future operating results;
 
    
    our reliance on contract manufacturers and suppliers to manufacture Visudyne at
competitive prices and in accordance with the U.S. Food and Drug Administration and other
local and foreign regulatory requirements as well as our product specifications;
 
    
    our reliance on our specialty wholesale distributors to distribute Visudyne in
accordance with regulatory requirements and the terms of our agreements;
 
    
    our expectations regarding future tax liabilities as a result of our recent
restructuring transactions, changes in estimates of prior years tax items and results of
tax audits by tax authorities;
 
    
    the scope, validity and enforceability of our and third party intellectual property
rights;
 
    
    our ability to successfully develop our programs, including our punctal plug drug
delivery system and synthetic retinoid program;
 
    
    the anticipated timing, cost and progress of the development of our technology and
clinical trials;
 
    
    the anticipated timing of regulatory submissions for products and product candidates;
 
    
    the anticipated timing for receipt of, and our ability to maintain, regulatory approvals
for products and product candidates;
 
    
    the anticipated timing for receipt of, and our ability to maintain, reimbursement
approvals for our products and product candidates, including reimbursement under U.S.
governmental and private insurance programs; and
 
    
    existing governmental laws and regulations and changes in, or the failure to comply
with, governmental laws and regulations.
   21




---



##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
    22




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
   Visudyne is currently our only commercial product. Accordingly, any decrease in sales of Visudyne
would harm our business.
  
    
    product manufacturing or supply interruptions or recalls;
 
    
    the development of competitive products by other companies;
 
    
    developing and maintaining effective sales and marketing capabilities;
 
    
    marketing or pricing actions by our competitors or regulatory authorities;
 
    
    changes in the reimbursement by third-party payors;
 
    
    changes in or withdrawal of regulatory approval for or the labelling of Visudyne;
 
    
    the majority of the laser devices used in Visudyne therapy have reached, or are nearing,
the end of their lifecycle;
 
    
    declining commercial supply and technical support for laser devices used in Visudyne
therapy;
 
    
    disputes relating to patents or other intellectual property rights;
 
    
    disputes with our licensees; and
 
    
    changes in laws and regulations that adversely affect our ability to market Visudyne.
 We face intense competition, which may limit our commercial opportunities and our ability to
generate revenues.
   23




---



##### Table of Contents



® ®  ®
   Product development is a long, expensive and uncertain process, and we may terminate one or more of
our development programs. If we terminate a development program or product candidate, or
alternately, if we decide to modify a development program, our prospects may suffer and we may
incur significant expenses that could adversely affect our financial condition or results of
operations.
  Our commercial success depends in part on our ability and the ability of our licensors to obtain
and maintain patent protection and/or orphan drug designation and resulting marketing exclusivity
on our products and technologies, to preserve trade secrets, and to operate without infringing the
proprietary rights of others.
  cis
  24




---



##### Table of Contents



ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   25




---



##### Table of Contents



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
    
    
    ProgramsJuly 1, 2011 through
July 31, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,052,913August 1, 2011
through August 31,
2011
    
    
    82,300
    
    
    $
    7.19
    
    
    
    82,300
    
    
    
    1,970,613September 1, 2011
through September
30, 2011
    
    
    547,145
    
    
    $
    7.14
    
    
    
    547,145
    
    
    
    1,423,468Total
    
    
    629,445
    
    
    $
    7.15
    
    
    
    629,445
    
    
    
    1,423,468
 
 ITEM 6.
    
    EXHIBITS
   26




---



##### Table of Contents



SIGNATURES
  QLT Inc.
(Registrant)Date: November 3, 2011
    By:
    /s/ Robert L. ButchofskyRobert L. ButchofskyPresident and Chief Executive Officer
(Principal Executive Officer) Date: November 3, 2011
    By:
    /s/ Cameron R. NelsonCameron R. NelsonSenior Vice President, Finance and 
Chief Financial Officer
(Principal Financial and Accounting Officer)  27




---



##### Table of Contents



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.
  28