##### 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 June 30, 2009
 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
 o 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
June 30, 2009
 TABLE OF CONTENTS
 ITEM
    
    PAGEPART I  FINANCIAL INFORMATION1. FINANCIAL STATEMENTS
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 and June 30, 2008
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2009 and June 30, 2008
    
    
    3Unaudited Condensed Consolidated Statement of Changes in Shareholders Equity and Comprehensive Income for the three and six months ended June 30, 2009
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    52. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    163. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    254. CONTROLS AND PROCEDURES
    
    
    25PART II  OTHER INFORMATION1. LEGAL PROCEEDINGS
    
    
    261A. RISK FACTORS
    
    
    264. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    266. EXHIBITS
    
    
    27Exhibit 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)
    
    June 30, 2009
    
    
    December 31, 2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    134,927
    
    
    $
    165,395Restricted cash (Note 12)
    
    
    
    
    
    
    124,578Accounts receivable
    
    
    26,406
    
    
    
    31,096Income taxes receivable
    
    
    48,092
    
    
    
    50,899Inventories (Note 2)
    
    
    16,426
    
    
    
    11,633Current portion of deferred income tax assets
    
    
    10,137
    
    
    
    9,835Other (Note 3)
    
    
    6,950
    
    
    
    11,144242,938
    
    
    
    404,580Property, plant and equipment
    
    
    2,453
    
    
    
    3,184Deferred income tax assets
    
    
    28,059
    
    
    
    30,216Goodwill
    
    
    23,145
    
    
    
    23,145Mortgage receivable
    
    
    10,325
    
    
    
    9,834Long-term inventories and other assets (Note 4)
    
    
    17,072
    
    
    
    20,799$
    323,992
    
    
    $
    491,758LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    8,194
    
    
    $
    9,115Accrued restructuring charge (Note 7)
    
    
    139
    
    
    
    726Accrued liabilities (Note 5)
    
    
    4,004
    
    
    
    129,512Current portion of deferred revenue
    
    
    6,051
    
    
    
    5,67318,388
    
    
    
    145,026Uncertain tax position liabilities
    
    
    2,584
    
    
    
    2,033Deferred revenue
    
    
    735
    
    
    
    1,46921,707
    
    
    
    148,528CONTINGENCIES (Note 12)SHAREHOLDERS EQUITYShare capital (Note 8)Authorized500,000,000 common shares without par value5,000,000 first preference shares without par
value, issuable
in seriesIssued and outstandingCommon shares
    
    
    514,009
    
    
    
    702,221June 30, 2009  54,620,328 sharesDecember 31, 2008  74,620,328 sharesAdditional paid in-capital
    
    
    268,477
    
    
    
    123,367Accumulated deficit
    
    
    (569,633
    )
    
    
    (579,564
    )Accumulated other comprehensive income
    
    
    89,432
    
    
    
    97,206302,285
    
    
    
    343,230$
    323,992
    
    
    $
    491,758
   1




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##### Table of Contents



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars except share and per share information)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008RevenuesNet product revenue (Note 9)
    
    $
    19,959
    
    
    $
    22,517
    
    
    $
    40,775
    
    
    $
    42,533Royalties
    
    
    12,678
    
    
    
    7,736
    
    
    
    21,585
    
    
    
    14,037Licensing, milestones and other
    
    
    367
    
    
    
    368
    
    
    
    735
    
    
    
    74533,004
    
    
    
    30,621
    
    
    
    63,095
    
    
    
    57,315Costs and expensesCost of sales
    
    
    16,637
    
    
    
    14,148
    
    
    
    29,636
    
    
    
    25,905Research and development
    
    
    7,225
    
    
    
    8,114
    
    
    
    13,111
    
    
    
    16,162Selling, general and administrative
    
    
    4,540
    
    
    
    4,882
    
    
    
    9,742
    
    
    
    12,046Depreciation
    
    
    354
    
    
    
    1,080
    
    
    
    697
    
    
    
    2,101Litigation
    
    
    
    
    
    
    864
    
    
    
    334
    
    
    
    864Restructuring (Note 7)
    
    
    (33
    )
    
    
    1,872
    
    
    
    (156
    )
    
    
    9,47128,723
    
    
    
    30,960
    
    
    
    53,364
    
    
    
    66,549Operating income (loss)
    
    
    4,281
    
    
    
    (339
    )
    
    
    9,731
    
    
    
    (9,234
    )Investment and other income (expense)Net foreign exchange gains (losses)
    
    
    6,726
    
    
    
    (17
    )
    
    
    6,775
    
    
    
    237Interest income
    
    
    588
    
    
    
    1,619
    
    
    
    1,965
    
    
    
    3,936Interest expense
    
    
    (345
    )
    
    
    (3,040
    )
    
    
    (1,848
    )
    
    
    (6,068
    )Other gains
    
    
    (40
    )
    
    
    109
    
    
    
    24
    
    
    
    2626,929
    
    
    
    (1,329
    )
    
    
    6,916
    
    
    
    (1,633
    )Income (loss) from continuing operations before income taxes
    
    
    11,210
    
    
    
    (1,668
    )
    
    
    16,647
    
    
    
    (10,867
    )Provision for income taxes
    
    
    (2,581
    )
    
    
    (1,066
    )
    
    
    (6,716
    )
    
    
    (902
    )Income (loss) from continuing operations
    
    
    8,629
    
    
    
    (2,734
    )
    
    
    9,931
    
    
    
    (11,769
    )Loss from discontinued operations, net of income taxes (Note 10)
    
    
    
    
    
    
    (4,704
    )
    
    
    
    
    
    
    (6,140
    )Net income (loss)
    
    $
    8,629
    
    
    $
    (7,438
    )
    
    $
    9,931
    
    
    $
    (17,909
    )Basic net income (loss) per common shareContinuing operations
    
    $
    0.16
    
    
    $
    (0.04
    )
    
    $
    0.17
    
    
    $
    (0.16
    )Discontinued operations
    
    
    
    
    
    
    (0.06
    )
    
    
    
    
    
    
    (0.08
    )Net income (loss)
    
    $
    0.16
    
    
    $
    (0.10
    )
    
    $
    0.17
    
    
    $
    (0.24
    )Diluted net income (loss) per common shareContinuing operations
    
    $
    0.16
    
    
    $
    (0.04
    )
    
    $
    0.17
    
    
    $
    (0.16
    )Discontinued operations
    
    
    
    
    
    
    (0.06
    )
    
    
    
    
    
    
    (0.08
    )Net income (loss)
    
    $
    0.16
    
    
    $
    (0.10
    )
    
    $
    0.17
    
    
    $
    (0.24
    )Weighted average number of common shares outstanding (thousands)Basic
    
    
    54,620
    
    
    
    74,620
    
    
    
    57,954
    
    
    
    74,620Diluted
    
    
    54,620
    
    
    
    74,620
    
    
    
    57,954
    
    
    
    74,620
   2




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##### Table of Contents



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cash provided by (used in) operating activitiesNet income (loss)
    
    $
    8,629
    
    
    $
    (7,438
    )
    
    $
    9,931
    
    
    $
    (17,909
    )Adjustments to reconcile net income (loss) to net cash
from operating activitiesDepreciation
    
    
    354
    
    
    
    1,080
    
    
    
    697
    
    
    
    2,101Write-down of inventory
    
    
    4,638
    
    
    
    7,066
    
    
    
    4,638
    
    
    
    7,066Write-down of investment
    
    
    128
    
    
    
    
    
    
    
    128
    
    
    
    Share-based compensation
    
    
    553
    
    
    
    678
    
    
    
    1,035
    
    
    
    2,041Amortization of deferred financing expenses
    
    
    
    
    
    
    342
    
    
    
    
    
    
    
    685Unrealized foreign exchange (gains) losses
    
    
    (7,192
    )
    
    
    29
    
    
    
    (5,150
    )
    
    
    5,613Interest earned on restricted cash
    
    
    (28
    )
    
    
    (860
    )
    
    
    (295
    )
    
    
    (2,088
    )Deferred income taxes
    
    
    29
    
    
    
    5,789
    
    
    
    2,701
    
    
    
    4,753Changes in non-cash operating assets and liabilitiesAppeal bond collateral
    
    
    124,622
    
    
    
    
    
    
    
    124,622
    
    
    
    Accounts receivable
    
    
    (1,117
    )
    
    
    (5,595
    )
    
    
    5,159
    
    
    
    (5,635
    )Inventories
    
    
    (5,685
    )
    
    
    (2,962
    )
    
    
    (4,557
    )
    
    
    (1,639
    )Other assets
    
    
    2,459
    
    
    
    1,752
    
    
    
    4,794
    
    
    
    (2,015
    )Accounts payable
    
    
    (732
    )
    
    
    1,357
    
    
    
    (1,271
    )
    
    
    488Income taxes receivable / payable
    
    
    2,085
    
    
    
    (7,247
    )
    
    
    4,701
    
    
    
    (7,062
    )Accrued restructuring charge
    
    
    (51
    )
    
    
    171
    
    
    
    (591
    )
    
    
    1,346Other accrued liabilities
    
    
    (125,739
    )
    
    
    6,229
    
    
    
    (125,342
    )
    
    
    6,934Deferred revenue
    
    
    119
    
    
    
    480
    
    
    
    (547
    )
    
    
    (1
    )3,072
    
    
    
    871
    
    
    
    20,653
    
    
    
    (5,322
    )Cash (used in) provided by investing activitiesRestricted
cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,307Proceeds on disposal of property, plant and equipment
    
    
    39
    
    
    
    86
    
    
    
    102
    
    
    
    86Purchase of property, plant and equipment
    
    
    (70
    )
    
    
    (37
    )
    
    
    (126
    )
    
    
    (219
    )Other acquisition related costs
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (41
    )(31
    )
    
    
    38
    
    
    
    (24
    )
    
    
    2,133Cash used in financing activitiesCommon shares repurchased, including fees
    
    
    
    
    
    
    
    
    
    
    (51,889
    )
    
    
    
    
    
    
    
    
    
    
    (51,889
    )
    
    
    Effect of exchange rate changes on cash and cash equivalents
    
    
    1,737
    
    
    
    14
    
    
    
    792
    
    
    
    (2,652
    )Net increase (decrease) in cash and cash equivalents
    
    
    4,778
    
    
    
    923
    
    
    
    (30,468
    )
    
    
    (5,841
    )Cash and cash equivalents, beginning of period
    
    
    130,149
    
    
    
    119,967
    
    
    
    165,395
    
    
    
    126,731Cash and cash equivalents, end of period
    
    $
    134,927
    
    
    $
    120,890
    
    
    $
    134,927
    
    
    $
    120,890Supplementary cash flow information:Interest paid
    
    $
    1,832
    (1)
    
    $
    32
    
    
    $
    1,832
    (1)
    
    $
    2,620Income taxes paid
    
    
    577
    
    
    
    1
    
    
    
    2,336
    
    
    
    24
 (1)
    
    At June 30, 2009 interest paid relates to the MEEI judgment.   3




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##### Table of Contents



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY  (Unaudited)
 AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total(All amounts except share information
    
    Common Shares
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Shareholdersare expressed in thousands of U.S. dollars)
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Income (Loss)
    
    
    EquityBalance at December 31,
2007
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    119,779
    
    
    $
    112,278
    
    
    $
    (714,455
    )
    
    
    
    
    
    $
    219,823Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,588Other comprehensive
income:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,072
    )
    
    
    
    
    
    
    (15,072
    )
    
    
    (15,072
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,891
    
    
    
    134,891
    
    
    
    134,891Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,819
    
    
    
    Balance at December 31,
2008
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    123,367
    
    
    $
    97,206
    
    
    $
    (579,564
    )
    
    $
    
    
    
    $
    343,230Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    524Common share repurchase
    
    
    (20,000,000
    )
    
    
    (188,212
    )
    
    
    144,015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,197
    )Other comprehensive
income:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,378
    )
    
    
    
    
    
    
    (9,378
    )
    
    
    (9,378
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,301
    
    
    
    1,301
    
    
    
    1,301Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,077
    )
    
    
    Balance at March 31, 2009
    
    
    54,620,328
    
    
    $
    514,009
    
    
    $
    267,906
    
    
    $
    87,828
    
    
    $
    (578,263
    )
    
    $
    
    
    
    $
    291,480Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    571Other comprehensive
income:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,604
    
    
    
    
    
    
    
    1,604
    
    
    
    1,604Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,629
    
    
    
    8,629
    
    
    
    8,629Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,233
    
    
    
    Balance at June 30, 2009
    
    
    54,620,328
    
    
    $
    514,009
    
    
    $
    268,477
    
    
    $
    89,432
    (1)
    
    $
    (569,633
    )
    
    $
    
    
    
    $
    302,285
 (1)
    
    At June 30, 2009 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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##### Table of Contents



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  1. CONDENSED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Business
 ® ®
 Basis of Presentation
  Accounting for the Impairment or Disposal of
Long-lived Assets
  Principles of Consolidation
  Use of Estimates
  Reporting Currency and Foreign Currency Translation
   5




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##### Table of Contents



Segmented Information
  Revenue Recognition
 Net Product Revenue
     Royalties
  Discontinued Operations
    6




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##### Table of Contents



Income Taxes
  Contingencies Related to Legal Proceedings
  Net Income (Loss) Per Common Share
   Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars, except share and per share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Income (loss) from continuing operations
    
    $
    8,629
    
    
    $
    (2,734
    )
    
    $
    9,931
    
    
    $
    (11,769
    )Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (4,704
    )
    
    
    
    
    
    
    (6,140
    )Net income (loss)
    
    $
    8,629
    
    
    $
    (7,438
    )
    
    $
    9,931
    
    
    $
    (17,909
    )Denominator: (thousands)Weighted average common shares outstanding
    
    
    54,620
    
    
    
    74,620
    
    
    
    57,954
    
    
    
    74,620Effect of dilutive securities:Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average common shares outstanding
    
    
    54,620
    
    
    
    74,620
    
    
    
    57,954
    
    
    
    74,620Basic net income (loss) per common shareContinuing operations
    
    $
    0.16
    
    
    $
    (0.04
    )
    
    $
    0.17
    
    
    $
    (0.16
    )Discontinued operations
    
    
    
    
    
    
    (0.06
    )
    
    
    
    
    
    
    (0.08
    )Net income (loss)
    
    $
    0.16
    
    
    $
    (0.10
    )
    
    $
    0.17
    
    
    $
    (0.24
    )Diluted net income (loss) per common shareContinuing operations
    
    $
    0.16
    
    
    $
    (0.04
    )
    
    $
    0.17
    
    
    $
    (0.16
    )Discontinued operations
    
    
    
    
    
    
    (0.06
    )
    
    
    
    
    
    
    (0.08
    )Net income (loss)
    
    $
    0.16
    
    
    $
    (0.10
    )
    
    $
    0.17
    
    
    $
    (0.24
    )
   7




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##### Table of Contents



Fair Value of Financial Assets and Liabilities
  Subsequent Events
  Recently Issued Accounting Standards
 Business Combinations,
 Noncontrolling Interests in Consolidated Financial
Statements  an amendment of Accounting Research Bulletin No. 51 or
 Effective Date of FASB Statement No. 157, or SFAS
157,
 Disclosures about Derivative Instruments and Hedging
Activities-an amendment of SFAS 133, Accounting for Derivative Instruments and Hedging
Activities,
 Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed,
  8




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##### Table of Contents



Recognition and Presentation of Other-Than-Temporary Impairments
 Interim Disclosures
about Fair Value of Financial Instruments Disclosures about Fair Value of Financial Instruments Interim Financial Reporting
 The Hierarchy of Generally Accepted Accounting Principles
 Subsequent Events
 2. INVENTORIES
 (In thousands of U.S. dollars)
    
    June 30, 2009
    
    
    December 31, 2008Raw materials and supplies
    
    $
    8,450
    
    
    $
    6,308Work-in-process
    
    
    32,496
    
    
    
    30,445Finished goods
    
    
    1,851
    
    
    
    256Provision for excess inventory
    
    
    (7,253
    )
    
    
    (2,471
    )Provision for non-completion of product inventory
    
    
    (3,745
    )
    
    
    (3,735
    )31,799
    
    
    
    30,803Less: Long-term inventory, net of provisions
    
    
    (15,373
    )
    
    
    (19,170
    )$
    16,426
    
    
    $
    11,633
    9




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##### Table of Contents



3. OTHER CURRENT ASSETS
 (In thousands of U.S. dollars)
    
    June 30, 2009
    
    
    December 31, 2008Inventory in transit held by Novartis
    
    $
    4,717
    
    
    $
    5,555Foreign exchange contracts
    
    
    262
    
    
    
    3,542Prepaid expenses and other
    
    
    1,971
    
    
    
    2,047$
    6,950
    
    
    $
    11,144
  4. LONG-TERM INVENTORIES AND OTHER ASSETS
 (In thousands of U.S. dollars)
    
    June 30, 2009
    
    
    December 31, 2008Inventory, net of provisions
    
    $
    15,373
    
    
    $
    19,170Other
    
    
    1,699
    
    
    
    1,629$
    17,072
    
    
    $
    20,799
 5. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    June 30, 2009
    
    
    December 31, 2008Litigation charge  MEEI judgment (Note 12)
    
    $
    
    
    
    $
    125,119Royalties
    
    
    677
    
    
    
    713Ongoing damages  MEEI judgment (Note 12)
    
    
    872
    
    
    
    Compensation
    
    
    2,431
    
    
    
    3,257Interest
    
    
    24
    
    
    
    418Other
    
    
    
    
    
    
    5$
    4,004
    
    
    $
    129,512
 6. FOREIGN EXCHANGE FACILITIES
  7. RESTRUCTURING CHARGE
   10




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##### Table of Contents



EmployeeTermination(In thousands of U. S. dollars)
    
    Costs (1)Balance at December 31, 2008
    
    $
    726Restructuring adjustment
    
    
    (123
    )Foreign exchange
    
    
    (10
    )Cash payments
    
    
    (485
    )Non-cash portion(2)
    
    
    69Balance at March 31, 2009
    
    $
    177Restructuring adjustment
    
    
    (33
    )Foreign exchange
    
    
    14Cash payments
    
    
    (19
    )Balance at June 30, 2009
    
    $
    139
 (1)
    
    Costs include severance, termination benefits, and outplacement support.(2)
    
    Non-cash portion is stock-based compensation. 8. SHARE CAPITAL
     Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Annualized volatility
    
    
    53.6
    %
    
    
    42.1
    %
    
    
    53.6
    %
    
    
    42.1
    %Risk-free interest rate
    
    
    1.7
    %
    
    
    2.9
    %
    
    
    1.7
    %
    
    
    2.9
    %Expected life (years)
    
    
    3.6
    
    
    
    3.9
    
    
    
    3.6
    
    
    
    3.9
   11




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of sales
    
    $
    9
    
    
    $
    29
    
    
    $
    18
    
    
    $
    57Research and development
    
    
    260
    
    
    
    248
    
    
    
    487
    
    
    
    576Selling, general and administrative
    
    
    284
    
    
    
    387
    
    
    
    599
    
    
    
    828Restructuring charge
    
    
    
    
    
    
    (17
    )
    
    
    (69
    )
    
    
    520Discontinued operations
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    60Stock-based compensation expense before
income taxes
    
    
    553
    
    
    
    678
    
    
    
    1,035
    
    
    
    2,041Related income tax benefits
    
    
    (9
    )
    
    
    (22
    )
    
    
    (22
    )
    
    
    (48
    )Stock-based compensation, net of income taxes
    
    $
    544
    
    
    $
    656
    
    
    $
    1,013
    
    
    $
    1,993
  9. NET PRODUCT REVENUE
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Visudyne sales by Novartis
    
    $
    28,985
    
    
    $
    40,677
    
    
    $
    56,739
    
    
    $
    77,156Less: Marketing and distribution
costs
    
    
    (8,786
    )
    
    
    (17,900
    )
    
    
    (17,473
    )
    
    
    (35,932
    )Less: Inventory costs
    
    
    (1,476
    )
    
    
    (3,073
    )
    
    
    (3,132
    )
    
    
    (5,062
    )Less: Royalties to third parties
    
    
    (626
    )
    
    
    (869
    )
    
    
    (1,228
    )
    
    
    (1,647
    )$
    18,097
    
    
    $
    18,835
    
    
    $
    34,906
    
    
    $
    34,515QLTs 50% share of Novartis net
proceeds from Visudyne sales
    
    $
    9,049
    
    
    $
    9,418
    
    
    $
    17,453
    
    
    $
    17,257Add: Advance on inventory costs from
Novartis
    
    
    941
    
    
    
    2,397
    
    
    
    2,884
    
    
    
    3,752Add: Royalties reimbursed to QLT
    
    
    625
    
    
    
    879
    
    
    
    1,236
    
    
    
    1,676Add: Other costs reimbursed to QLT
    
    
    112
    
    
    
    990
    
    
    
    933
    
    
    
    2,903Revenue from Visudyne sales
    
    $
    10,727
    
    
    $
    13,684
    
    
    $
    22,506
    
    
    $
    25,588Net product revenue from Eligard
    
    
    9,232
    
    
    
    8,833
    
    
    
    18,269
    
    
    
    16,945$
    19,959
    
    
    $
    22,517
    
    
    $
    40,775
    
    
    $
    42,533
    12




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10. DISCONTINUED OPERATIONS
   Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Pre-tax loss
    
    
    
    
    
    
    (7,588
    )
    
    
    
    
    
    
    (9,905
    )Recovery of income taxes
    
    
    
    
    
    
    2,884
    
    
    
    
    
    
    
    3,765Net loss from discontinued operations
    
    $
    
    
    
    $
    (4,704
    )
    
    $
    
    
    
    $
    (6,140
    )
 11. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
   Carrying Value
    
    
    Fair Value Measurements at June 30, 2009June 30, 2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash and cash equivalents
    
    $
    134,927
    
    
    $
    134,927
    
    
    $
    
    
    
    $
    Forward currency contracts (1)
    
    
    262
    
    
    
    
    
    
    
    262
    
    
    
    Total
    
    $
    135,189
    
    
    $
    134,927
    
    
    $
    262
    
    
    $
    
 .
 Maturity Period
    
    
    Quantity (millions)
    
    
    Average PriceCAD / USDForward contracts to sell USD
    
    
    2009
    
    
    USD 14.0
    
    
    1.18360 per USD
 (1)
    
    Our foreign currency forward contracts are valued using an income approach based on
the present value of the forward rate less the contract rate multiplied by the notional amount.     13




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12. CONTINGENCIES
              14




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15




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
  Marketed Products
  Research and Development
     16




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##### Table of Contents



RESULTS OF OPERATIONS
  Revenues
 Net Product Revenue
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Visudyne sales by Novartis
    
    $
    28,985
    
    
    $
    40,677
    
    
    $
    56,739
    
    
    $
    77,156Less: Marketing and distribution
costs(1)
    
    
    (8,786
    )
    
    
    (17,900
    )
    
    
    (17,473
    )
    
    
    (35,932
    )Less: Inventory costs(2)
    
    
    (1,476
    )
    
    
    (3,073
    )
    
    
    (3,132
    )
    
    
    (5,062
    )Less: Royalties to third parties(3)
    
    
    (626
    )
    
    
    (869
    )
    
    
    (1,228
    )
    
    
    (1,647
    )$
    18,097
    
    
    $
    18,835
    
    
    $
    34,906
    
    
    $
    34,515QLTs 50% share of Novartis net proceeds from Visudyne
sales
    
    $
    9,049
    
    
    $
    9,418
    
    
    $
    17,453
    
    
    $
    17,257Add: Advance on inventory costs from
Novartis(4)
    
    
    941
    
    
    
    2,397
    
    
    
    2,884
    
    
    
    3,752Add: Royalties reimbursed to QLT(5)
    
    
    625
    
    
    
    879
    
    
    
    1,236
    
    
    
    1,676Add: Other costs reimbursed to QLT(6)
    
    
    112
    
    
    
    990
    
    
    
    933
    
    
    
    2,903Revenue from Visudyne sales
    
    $
    10,727
    
    
    $
    13,684
    
    
    $
    22,506
    
    
    $
    25,588Net product revenue from Eligard
    
    
    9,232
    
    
    
    8,833
    
    
    
    18,269
    
    
    
    16,945$
    19,959
    
    
    $
    22,517
    
    
    $
    40,775
    
    
    $
    42,533
 (1)
    
    Less: Marketing and distribution costs  (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   17




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Royalties
  Costs and Expenses
 Cost of Sales
   18




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Research and Development
   
    
    inability to design punctal plugs to function as expected,
    
    delays or inability to formulate active ingredient in right concentration to deliver
effective doses of drug,
    
    changes in the regulatory environment,
    
    introduction of competing technologies and treatments,
    
    unexpected safety issues,
    
    patent application, maintenance and enforcement issues,
    
    inability to operate without infringing the proprietary rights of others,
    
    changes in the commercial marketplace,
    
    difficulties in enrolling patients into or keeping them in our clinical studies,
    
    delays in study progression, including study site, Institutional Review Board and
regulatory delays,
    
    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 expertise required by our
development program,
    
    inability to manufacture sterile supplies necessary for composition of products,
    
    uncertainties related to collaborative arrangements,
    
    environmental risks, and
    
    other factors referenced under Item 1A, Risk Factors.
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Ocular
    
    $
    7,069
    
    
    $
    7,093
    
    
    $
    12,781
    
    
    $
    13,802Dermatology
    
    
    
    
    
    
    966
    
    
    
    10
    
    
    
    2,240Other
    
    
    156
    
    
    
    55
    
    
    
    320
    
    
    
    120$
    7,225
    
    
    $
    8,114
    
    
    $
    13,111
    
    
    $
    16,162
 Selling, General and Administrative Expenses
   19




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Litigation
  Restructuring Charge
  Investment and Other Income (Expense)
 Net Foreign Exchange Gains (Losses)
   Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cash and cash equivalents
    
    $
    (512
    )
    
    $
    77
    
    
    $
    628
    
    
    $
    1,978Restricted cash
    
    
    (3,979
    )
    
    
    (447
    )
    
    
    3
    
    
    
    2,799U.S. dollar convertible debt
    
    
    
    
    
    
    649
    
    
    
    
    
    
    
    (3,936
    )Foreign exchange contracts
    
    
    669
    
    
    
    (231
    )
    
    
    1,776
    
    
    
    1,829Foreign currency receivables, payables and other
    
    
    10,548
    
    
    
    (65
    )
    
    
    4,368
    
    
    
    (2,433
    )Net foreign exchange gains (losses)
    
    $
    6,726
    
    
    $
    (17
    )
    
    $
    6,775
    
    
    $
    237
 Interest Income
  Interest Expense
   20




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Loss from Discontinued Operations
 Accounting for the Impairment or Disposal of
Long-lived Asset
 Income Taxes
  LIQUIDITY AND CAPITAL RESOURCES
 General
    Sources and Uses of Cash
    21




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##### Table of Contents




    
    A positive cash flow variance from higher cash receipts from product sales and royalties
of $5.1 million;
 
    
    A positive cash flow variance from lower restructuring costs of $1.6 million;
 
    
    A negative cash flow variance from higher operating and inventory related expenditures
of $2.3 million; and
 
    
    A negative cash flow variance from settlement of the MEEI judgment resulting in the
release of the appeal bond and an additional $2.2 million payment.
    
    
    A positive cash flow variance from higher cash receipts from product sales and royalties
of $12.6 million;
 
    
    A positive cash flow variance from lower restructuring costs of $5.6 million;
 
    
    A positive cash flow
variance from lower operating and inventory related expenditures
of $5.4 million;
 
    
    A positive cash flow
variance from higher foreign exchange gains of $2.6 million;
 
    
    A positive cash flow variance from higher investment and other income of $2.0 million;
and
 
    
    A negative cash flow variance from settlement of the MEEI judgment resulting in the
release of the appeal bond and an additional $2.2 million payment.
   Interest and Foreign Exchange Rates
     22




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Maturity Period
    
    
    Quantity (millions)
    
    
    Average PriceCAD / USDForward contracts to sell USD
    
    
    2009
    
    
    USD 14.0
    
    1.1836 per USD
 Contractual Obligations
  Off-Balance Sheet Arrangements
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Recently Issued and Recently Adopted Accounting Standards
   23




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    anticipated levels of future sales of our products;
 
    
    Novartis ongoing commitment to Visudyne;
 
    
    our continued ability to supply our products to our customers;
 
    
    our expectations regarding Visudyne label changes, reimbursement and sales;
 
    
    our ability to successfully develop our latanoprost punctal plug delivery system
(L-PPDS);
 
    
    unanticipated future operating results;
 
    
    our expectations as to the outcome of the MGH litigation against us and the effect of an
adverse judgment;
 
    
    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 Eligard and related assets at
prices acceptable to us or at all;
 
    
    the anticipated timing, cost and progress of the development of our technology
(including our punctal plug delivery system and our synthetic retinoid technology) and
clinical trials;
 
    
    the anticipated timing of regulatory submissions for our products;
 
    
    the anticipated timing for receipt of, and our ability to maintain, regulatory approvals
for our products; and
 
    
    the anticipated timing for receipt of, and our ability to maintain, reimbursement
approvals for our products in development.
    24




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Form 10-K
 
 ITEM 4.
    
    CONTROLS AND PROCEDURES
        25




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   NUMBER OF SHARESDIRECTORS NOMINATED
    
    FOR
    
    
    AGAINST
    
    
    WITHHELD
    
    
    NON VOTERobert L. Butchofsky
    
    
    36,918,383
    
    
    
    0
    
    
    
    3,259,267
    
    
    
    2Bruce L.A. Carter
    
    
    37,280,126
    
    
    
    0
    
    
    
    2,897,524
    
    
    
    2C. Boyd Clarke
    
    
    37,338,094
    
    
    
    0
    
    
    
    2,839,556
    
    
    
    2Peter A. Crossgrove
    
    
    37,313,174
    
    
    
    0
    
    
    
    2,864,476
    
    
    
    2Kathryn E. Falberg
    
    
    37,329,381
    
    
    
    0
    
    
    
    2,848,269
    
    
    
    2Ian J. Massey
    
    
    37,266,911
    
    
    
    0
    
    
    
    2,910,739
    
    
    
    2L. Jack Wood
    
    
    37,261,009
    
    
    
    0
    
    
    
    2,916,641
    
    
    
    2
  Shares For
    
    Shares Against
    
    
    Shares Withheld
    
    
    Non-Votes39,631,264
    
    
    433,850
    
    
    
    112,537
    
    
    
    1
  26




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Shares For
    
    Shares Against
    
    
    Shares Withheld14,958,598
    
    
    3,831,621
    
    
    
    85,449
 
 ITEM 6.
    
    EXHIBITS
   27




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SIGNATURES
  QLT Inc.
(Registrant)Date: August 6, 2009
    By:
    /s/ Robert L. ButchofskyRobert L. ButchofskyPresident and  Chief Executive Officer

(Principal Executive Officer) Date: August 6, 2009
    By:
    /s/ Cameron R. NelsonCameron R. NelsonVice President, Finance and Chief Financial Officer

(Principal Financial and Accounting Officer)  28




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    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