##### 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 March 31, 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
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




---



##### 



QLT INC.
 QUARTERLY REPORT ON FORM 10-Q
March 31, 2011
 TABLE OF CONTENTS
 ITEM
    
    PAGEPART I  FINANCIAL INFORMATION1. FINANCIAL STATEMENTS
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of
March 31, 2011 and December 31, 2010
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the three
months ended March 31, 2011 and March 31, 2010
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2011 and March 31, 2010
    
    
    3Unaudited Condensed Consolidated Statement of Changes in Shareholders Equity
for the three months ended March 31, 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
    
    
    123. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    204. CONTROLS AND PROCEDURES
    
    
    20PART II  OTHER INFORMATION1. LEGAL PROCEEDINGS
    
    
    211A. RISK FACTORS
    
    
    212. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    226. EXHIBITS
    
    
    23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 QLT Inc.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (In thousands of U.S. dollars)
    
    March 31, 2011
    
    
    December 31, 2010ASSETSCurrent assetsCash and cash equivalents
    
    $
    205,869
    
    
    $
    209,478Accounts receivable
    
    
    9,606
    
    
    
    10,659Current portion of contingent consideration (Note 9)
    
    
    38,762
    
    
    
    36,520Inventories (Note 2)
    
    
    5,080
    
    
    
    3,324Current portion of deferred income tax assets
    
    
    3,563
    
    
    
    3,704Current portion of mortgage receivable (Note 3)
    
    
    1,031
    
    
    
    2,004Other
    
    
    2,261
    
    
    
    2,958266,172
    
    
    
    268,647Property, plant and equipment
    
    
    3,550
    
    
    
    3,035Deferred income tax assets
    
    
    2,399
    
    
    
    2,700Mortgage receivable (Note 3)
    
    
    6,183
    
    
    
    6,013Long-term inventories and other assets (Note 4)
    
    
    12,192
    
    
    
    13,319Contingent consideration (Note 9)
    
    
    82,937
    
    
    
    94,069$
    373,433
    
    
    $
    387,783LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    4,833
    
    
    $
    6,031Income taxes payable
    
    
    
    
    
    
    716Accrued liabilities (Note 5)
    
    
    4,372
    
    
    
    6,323Deferred income tax liability
    
    
    82
    
    
    
    829,287
    
    
    
    13,152Uncertain tax position liabilities
    
    
    1,757
    
    
    
    1,68711,044
    
    
    
    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
    
    
    475,994
    
    
    
    479,998March 31, 2011  50,759,775 sharesDecember 31, 2010  51,154,392 sharesAdditional paid-in capital
    
    
    289,644
    
    
    
    287,646Accumulated deficit
    
    
    (506,218
    )
    
    
    (497,669
    )Accumulated other comprehensive income
    
    
    102,969
    
    
    
    102,969362,389
    
    
    
    372,944$
    373,433
    
    
    $
    387,783
   1




---



##### Table of Contents



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three months endedMarch 31,(In thousands of U.S. dollars except share and per share information)
    
    2011
    
    
    2010RevenuesNet product revenue (Note 8)
    
    $
    5,590
    
    
    $
    10,470Royalties
    
    
    3,310
    
    
    
    3,2468,900
    
    
    
    13,716Costs and expensesCost of sales
    
    
    1,338
    
    
    
    6,552Research and development
    
    
    9,734
    
    
    
    7,347Selling, general and administrative
    
    
    7,096
    
    
    
    4,851Depreciation
    
    
    342
    
    
    
    31118,510
    
    
    
    19,061Operating loss
    
    
    (9,610
    )
    
    
    (5,345
    )Investment and other incomeNet foreign exchange gains
    
    
    279
    
    
    
    641Interest income
    
    
    210
    
    
    
    482Fair value change in contingent consideration
    
    
    2,282
    
    
    
    2,4432,771
    
    
    
    3,566Loss before income taxes
    
    
    (6,839
    )
    
    
    (1,779
    )(Provision for) recovery of income taxes (Note 10)
    
    
    (1,710
    )
    
    
    5,182Net (loss) income
    
    $
    (8,549
    )
    
    $
    3,403Basic and diluted net (loss) income per common share
    
    $
    (0.17
    )
    
    $
    0.06Weighted average number of common shares outstanding (thousands)Basic
    
    
    51,023
    
    
    
    53,717Diluted
    
    
    51,023
    
    
    
    54,370
   2




---



##### Table of Contents



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2011
    
    
    2010Cash used in operating activitiesNet (loss) income
    
    $
    (8,549
    )
    
    $
    3,403Adjustments to reconcile net (loss) income to net cash
used in operating activitiesDepreciation
    
    
    342
    
    
    
    311Share-based compensation
    
    
    929
    
    
    
    681Unrealized foreign exchange gains
    
    
    (168
    )
    
    
    (705
    )Interest earned on note receivable
    
    
    
    
    
    
    (244
    )Deferred income taxes
    
    
    602
    
    
    
    (8,086
    )Changes in non-cash operating assets and liabilitiesLong-term deposits and other assets
    
    
    686
    
    
    
    4,281Accounts receivable
    
    
    1,423
    
    
    
    345Inventories
    
    
    (588
    )
    
    
    (583
    )Accounts payable
    
    
    (956
    )
    
    
    (215
    )Income taxes receivable / payable
    
    
    (787
    )
    
    
    2,747Other accrued liabilities
    
    
    (2,143
    )
    
    
    (2,035
    )Deferred revenue
    
    
    
    
    
    
    (4,244
    )(9,209
    )
    
    
    (4,344
    )Cash provided by investing activitiesPurchase of property, plant and equipment
    
    
    (1,188
    )
    
    
    (549
    )Proceeds from mortgage receivable
    
    
    1,049
    
    
    
    Proceeds from contingent consideration(1)
    
    
    8,889
    
    
    
    7,8448,750
    
    
    
    7,295Cash used in financing activitiesCommon shares repurchased, including fees
    
    
    (3,675
    )
    
    
    (1,177
    )Issuance of common shares
    
    
    348
    
    
    
    43(3,327
    )
    
    
    (1,134
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    177
    
    
    
    154Net (decrease) increase in cash and cash equivalents
    
    
    (3,609
    )
    
    
    1,971Cash and cash equivalents, beginning of period
    
    
    209,478
    
    
    
    188,114Cash and cash equivalents, end of period
    
    $
    205,869
    
    
    $
    190,085Supplementary cash flow information:Interest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    
    829
    
    
    
    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 March 31, 2011, proceeds received on collection of the contingent
consideration totalled $11.2 million (2010  $10.3 million). Approximately $8.9 million (2010 -
$7.8 million) of the proceeds were included within cash provided by investing activities. The
remaining $2.3 million (2010  $2.4 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 provided by operating activities.   3




---



##### Table of Contents



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
    
    
    Deficit
    
    
    Loss
    
    
    Equity(All amounts except share and per share information are expressed in thousands of U.S. dollars)Balance 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
    (1)
    
    $
    (506,218
    )
    
    $
    
    
    
    $
    362,389
 (1)
    
    At March 31, 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




---



##### 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




---



##### Table of Contents



Royalties
  Income Taxes
  Contingent Consideration
  Net (Loss) Income Per Common Share
   Three months endedMarch 31,(In thousands of U.S. dollars, except share and per share data)
    
    2011
    
    
    2010Numerator:Net (loss) income
    
    $
    (8,549
    )
    
    $
    3,403Denominator: (thousands)Weighted average common shares outstanding
    
    
    51,023
    
    
    
    53,717Effect of dilutive securities:Stock options
    
    
    
    
    
    
    653Diluted weighted average common shares outstanding
    
    
    51,023
    
    
    
    54,370Basic and diluted net (loss) income per common share
    
    $
    (0.17
    )
    
    $
    0.06
  Fair Value of Financial Assets and Liabilities
   6




---



##### Table of Contents



Recently Adopted Accounting Standards
 Revenue Arrangements with Multiple Deliverables
 Milestone Method of
Revenue Recognition
 2. INVENTORIES
 (In thousands of U.S. dollars)
    
    March 31, 2011
    
    
    December 31, 2010Raw materials and supplies
    
    $
    29
    
    
    $
    74Work-in-process
    
    
    28,086
    
    
    
    28,045Finished goods
    
    
    895
    
    
    
    274Provision for excess inventory
    
    
    (11,075
    )
    
    
    (11,077
    )Provision for non-completion of inventory
    
    
    (2,185
    )
    
    
    (2,185
    )$
    15,750
    
    
    $
    15,131Long-term inventory, net of provisions
    
    
    (10,670
    )
    
    
    (11,807
    )Current inventory
    
    $
    5,080
    
    
    $
    3,324
    3. MORTGAGE RECEIVABLE
   7




---



##### Table of Contents



4. LONG-TERM INVENTORIES AND OTHER ASSETS
 (In thousands of U.S. dollars)
    
    March 31, 2011
    
    
    December 31, 2010Inventory, net of provisions
    
    $
    10,670
    
    
    $
    11,807Other
    
    
    1,521
    
    
    
    1,512$
    12,191
    
    
    $
    13,319
 5. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    March 31, 2011
    
    
    December 31, 2010Royalties
    
    $
    1,092
    
    
    $
    1,225Compensation
    
    
    1,875
    
    
    
    3,698DDSU compensation
    
    
    1,405
    
    
    
    1,400$
    4,372
    
    
    $
    6,323
 6. FOREIGN EXCHANGE FACILITY
  7. SHARE CAPITAL
     8




---



##### Table of Contents



Three months endedMarch 31,2011
    
    
    2010Annualized volatility
    
    
    55.4
    %
    
    
    55.1
    %Risk-free interest rate
    
    
    2.4
    %
    
    
    2.5
    %Expected life (years)
    
    
    3.7
    
    
    
    3.6
    Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2011
    
    
    2010Cost of sales
    
    $
    5
    
    
    $
    120Research and development
    
    
    328
    
    
    
    309Selling, general and administrative
    
    
    596
    
    
    
    253Stock-based compensation expense before income
taxes
    
    
    929
    
    
    
    682Related income tax benefits
    
    
    (29
    )
    
    
    (8
    )Stock-based compensation, net of income taxes
    
    $
    900
    
    
    $
    674
  8. NET PRODUCT REVENUE
   9




---



##### Table of Contents



Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2011
    
    
    2010U.S. Visudyne sales by QLT
    
    $
    5,242
    
    
    $
    5,045Visudyne sales to Novartis
    
    
    
    
    
    
    4,989Add: Royalties reimbursed to QLT
    
    
    332
    
    
    
    327Add: Other costs reimbursed to QLT
    
    
    16
    
    
    
    109Net product revenue from Visudyne sales
    
    $
    5,590
    
    
    $
    10,470
  Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2011
    
    
    2010U.S.
    
    $
    5,242
    
    
    $
    5,045Europe
    
    
    6,947
    
    
    
    7,207Rest of World
    
    
    9,602
    
    
    
    9,025Worldwide
    
    $
    21,791
    
    
    $
    21,277
 Three months endedMarch 31,2011
    
    
    2010U.S.
    
    
    24
    %
    
    
    24
    %Europe
    
    
    32
    %
    
    
    34
    %Rest of World
    
    
    44
    %
    
    
    42
    %Worldwide
    
    
    100
    %
    
    
    100
    %
 9. CONTINGENT CONSIDERATION
 ®
 10. INCOME TAXES
   10




---



##### Table of Contents



11. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
   Carrying Value
    
    
    Fair Value Measurements at March 31, 2011(In thousands of U.S. dollars)
    
    March 31, 2011
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash and cash equivalents
    
    $
    205,869
    
    
    $
    205,869
    
    
    $
    
    
    
    $
    Contingent consideration(1)
    
    
    121,699
    
    
    
    
    
    
    
    
    
    
    
    121,699Total
    
    $
    327,568
    
    
    $
    205,869
    
    
    $
    
    
    
    $
    121,699
 (1)
    
    To estimate the fair value of contingent consideration at March 31, 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 $1.8 million, from $121.7 million to $119.9
million. If estimated future revenues were to decrease by 10%, the contingent
consideration would decrease by $2.0 million, from $121.7 million to $119.7 million.The following table represents a reconciliation of our asset (contingent consideration)
measured and recorded at fair value on a recurring basis, using significant unobservable
inputs (Level 3): (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
    
    $
    121,699
     11




---



##### 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-Aventis Corp.
 
    
    Lucentis® is a registered trademark of Genentech, Inc.
 
    
    Visudyne® is a registered trademark of Novartis AG.
  OVERVIEW
 ®
 Products, Revenues and Other Sources of Funds
   ®
  12




---



##### Table of Contents



Research and Development
  QLT091001 for the treatment of Leber Congenital Amaurosis and Retinitis Pigmentosa. cis
 Punctal Plug Drug Delivery System for the treatment of Glaucoma and Allergic Conjunctivitis. ®
    13




---



##### Table of Contents



RESULTS OF OPERATIONS
  Revenues
  Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2011
    
    
    2010U.S. Visudyne sales by QLT
    
    $
    5,242
    
    
    $
    5,045Visudyne sales to Novartis
    
    
    
    
    
    
    4,989Add: Royalties reimbursed to QLT(1)
    
    
    332
    
    
    
    327Add: Other costs reimbursed to
QLT(2)
    
    
    16
    
    
    
    109Net product revenue from Visudyne sales
    
    $
    5,590
    
    
    $
    10,470
  (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.   Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2011
    
    
    2010U.S.
    
    $
    5,242
    
    
    $
    5,045Europe
    
    
    6,947
    
    
    
    7,207Rest of World
    
    
    9,602
    
    
    
    9,025Worldwide
    
    $
    21,791
    
    
    $
    21,277
 Three months endedMarch 31,2011
    
    
    2010U.S.
    
    
    24
    %
    
    
    24
    %Europe
    
    
    32
    %
    
    
    34
    %Rest of World
    
    
    44
    %
    
    
    42
    %Worldwide
    
    
    100
    %
    
    
    100
    %
  14




---



##### Table of Contents




    
    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
  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;
  15




---



##### Table of Contents




    
    trial design is inadequate for demonstration of 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 endedMarch 31,(In thousands of U.S. dollars)
    
    2011
    
    
    2010Ocular
    
    $
    9,734
    
    
    $
    7,165Other
    
    
    
    
    
    
    182$
    9,734
    
    
    $
    7,347
 Selling, General and Administrative Expenses
  Investment and Other Income
 Net Foreign Exchange Gains
  Interest Income
  Fair Value Change in Contingent Consideration
   16




---



##### Table of Contents



Income Taxes
  LIQUIDITY AND CAPITAL RESOURCES
 General
   Sources and Uses of Cash
   
    
    A negative operating cash flow variance from higher operating and inventory related
expenditures of $4.8 million;
 
    
    A negative operating cash flow variance from higher tax instalments of $0.8 million;
 
    
    A negative operating cash flow variance from lower investment and other income of $0.3
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 $0.5 million.
     17




---



##### 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
   18




---



##### 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 compound;
 
    
    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.
    19




---



##### 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
    20




---



##### 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;
 
    
    changes in laws and regulations that adversely affect our ability to market Visudyne;
and
 
    
    potential disruptions to our distribution channel and decreases in demand for Visudyne
in Japan due to the 2011 earthquake, tsunami and resultant business conditions and economic
uncertainty.
 We face intense competition, which may limit our commercial opportunities and our ability to
generate revenues.
   21




---



##### Table of Contents



® ®  ®
   
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   22




---



##### 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
    
    
    ProgramsJanuary 1, 2011
through January 31,
2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,592,985February 1, 2011
through February
28, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,592,985March 1, 2011
through March 31,
2011
    
    
    533,500
    
    
    $
    6.84
    
    
    
    533,500
    
    
    
    3,059,485Total
    
    
    533,500
    
    
    $
    6.84
    
    
    
    533,500
    
    
    
    3,059,485
 
 ITEM 6.
    
    EXHIBITS
   23




---



##### Table of Contents



SIGNATURES
  QLT Inc.
(Registrant)Date:      May 5, 2011
    By:
    /s/ Robert L. ButchofskyRobert L. ButchofskyPresident and Chief Executive Officer
(Principal Executive Officer)Date:      May 5, 2011
    By:
    /s/ Cameron R. NelsonCameron R. NelsonVice President, Finance and Chief Financial
Officer
(Principal Financial and Accounting Officer)  24




---



##### 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.
  25