##### 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, 2010
 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
 Yes
þ  No o
 Yes o   No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



QLT INC.
 QUARTERLY REPORT ON FORM 10-Q
March 31, 2010
 TABLE OF CONTENTS
 ITEM
    
    
    
    PAGEPART I  FINANCIAL INFORMATION1.
    
    FINANCIAL STATEMENTS
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of
March 31, 2010 and December 31, 2009
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the
three months ended March 31, 2010 and March 31, 2009
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2010 and March 31, 2009
    
    
    3Unaudited Condensed Consolidated Statement of Changes in Shareholders Equity
for the three months ended March 31, 2010
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    52.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    153.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    244.
    
    CONTROLS AND PROCEDURES
    
    
    24PART II  OTHER INFORMATION1.
    
    LEGAL PROCEEDINGS
    
    
    261A.
    
    RISK FACTORS
    
    
    262.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    276.
    
    EXHIBITS
    
    
    28Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 10.52




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 QLT Inc.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (In thousands of U.S. dollars)
    
    March 31, 2010
    
    
    December 31, 2009ASSETSCurrent assetsCash and cash equivalents
    
    $
    190,085
    
    
    $
    188,114Accounts receivable
    
    
    9,270
    
    
    
    9,465Note receivable (Note 12)
    
    
    9,503
    
    
    
    9,259Current portion of contingent consideration (Note 10)
    
    
    32,925
    
    
    
    33,587Income taxes receivable
    
    
    2,132
    
    
    
    4,879Inventories (Note 2)
    
    
    3,133
    
    
    
    2,874Current portion of deferred income tax assets
    
    
    7,321
    
    
    
    5,608Mortgage receivable
    
    
    11,821
    
    
    
    11,466Other (Note 3)
    
    
    1,762
    
    
    
    6,052267,952
    
    
    
    271,304Property, plant and equipment
    
    
    2,905
    
    
    
    2,597Deferred income tax assets
    
    
    19,876
    
    
    
    13,320Long-term inventories and other assets (Note 4)
    
    
    15,140
    
    
    
    14,925Contingent consideration (Note 10)
    
    
    110,309
    
    
    
    117,491$
    416,182
    
    
    $
    419,637LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    3,764
    
    
    $
    3,876Accrued liabilities (Note 5)
    
    
    3,581
    
    
    
    5,574Deferred revenue
    
    
    
    
    
    
    4,2447,345
    
    
    
    13,694Uncertain tax position liabilities
    
    
    1,553
    
    
    
    1,4898,898
    
    
    
    15,183CONTINGENCIES (Note 13)SHAREHOLDERS EQUITYShare capital (Note 7)Authorized500,000,000 common shares without par value
5,000,000 first preference shares without par
value, issuable
in seriesIssued and outstandingCommon sharesMarch 31, 2010  53,571,856 shares
December 31, 2009  53,789,289 shares
    
    
    503,926
    
    
    
    506,023Additional paid-in capital
    
    
    277,116
    
    
    
    275,592Accumulated deficit
    
    
    (476,727
    )
    
    
    (480,130
    )Accumulated other comprehensive income
    
    
    102,969
    
    
    
    102,969407,284
    
    
    
    404,454$
    416,182
    
    
    $
    419,637
   1




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##### 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)
    
    2010
    
    
    2009RevenuesNet product revenue (Note 8)
    
    $
    10,470
    
    
    $
    11,783Royalties
    
    
    3,246
    
    
    
    13,716
    
    
    
    11,783Costs and expensesCost of sales
    
    
    6,552
    
    
    
    3,351Research and development
    
    
    7,347
    
    
    
    5,886Selling, general and administrative
    
    
    4,851
    
    
    
    3,701Depreciation
    
    
    311
    
    
    
    341Litigation
    
    
    
    
    
    
    334Restructuring charges (recovery)
    
    
    
    
    
    
    (114
    )19,061
    
    
    
    13,499Operating loss
    
    
    (5,345
    )
    
    
    (1,716
    )Investment and other income (expense)Net foreign exchange gains
    
    
    641
    
    
    
    49Interest income
    
    
    482
    
    
    
    1,377Interest expense
    
    
    
    
    
    
    (1,503
    )Fair value change in contingent consideration
    
    
    2,443
    
    
    
    Other gains
    
    
    
    
    
    
    643,566
    
    
    
    (13
    )Loss from continuing operations before income taxes
    
    
    (1,779
    )
    
    
    (1,729
    )Recovery of (provision for) income taxes (Note 11)
    
    
    5,182
    
    
    
    (1,532
    )Income (loss) from continuing operations
    
    
    3,403
    
    
    
    (3,261
    )Income from discontinued operations, net of income taxes (Note 9)
    
    
    
    
    
    
    4,562Net income
    
    $
    3,403
    
    
    $
    1,301Basic net income per common shareContinuing operations
    
    $
    0.06
    
    
    $
    (0.05
    )Discontinued operations
    
    
    
    
    
    
    0.07Net income
    
    $
    0.06
    
    
    $
    0.02Diluted net income per common shareContinuing operations
    
    $
    0.06
    
    
    $
    (0.05
    )Discontinued operations
    
    
    
    
    
    
    0.07Net income
    
    $
    0.06
    
    
    $
    0.02Weighted average number of common shares outstanding (thousands)Basic
    
    
    53,717
    
    
    
    61,287Diluted
    
    
    54,370
    
    
    
    61,287
  2




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QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2010
    
    
    2009Cash used in operating activitiesNet income
    
    $
    3,403
    
    
    $
    1,301Adjustments to reconcile net income to net cash
from operating activitiesDepreciation
    
    
    311
    
    
    
    344Share-based compensation
    
    
    681
    
    
    
    482Unrealized foreign exchange (gain) loss
    
    
    (705
    )
    
    
    2,033Interest earned on restricted cash
    
    
    
    
    
    
    (267
    )Interest earned on note receivable
    
    
    (244
    )
    
    
    Deferred income taxes
    
    
    (8,086
    )
    
    
    2,672Changes in non-cash operating assets and liabilitiesAccounts receivable
    
    
    345
    
    
    
    6,276Inventories
    
    
    (583
    )
    
    
    1,128Other current assets
    
    
    4,281
    
    
    
    2,344Accounts payable
    
    
    (215
    )
    
    
    (539
    )Income taxes receivable
    
    
    2,747
    
    
    
    2,616Accrued restructuring charge
    
    
    
    
    
    
    (540
    )Other accrued liabilities
    
    
    (2,035
    )
    
    
    397Deferred revenue
    
    
    (4,244
    )
    
    
    (666
    )(4,344
    )
    
    
    17,581Cash provided by investing activitiesNet proceeds from sale of long-lived assets
    
    
    
    
    
    
    63Purchase of property, plant and equipment
    
    
    (549
    )
    
    
    (56
    )Proceeds from contingent consideration
    
    
    7,844
    
    
    
    7,295
    
    
    
    7Cash provided by financing activitiesCommon shares repurchased, including fees
    
    
    (1,177
    )
    
    
    (51,887
    )Issuance of common shares
    
    
    43
    
    
    
    (1,134
    )
    
    
    (51,887
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    154
    
    
    
    (947
    )Net
increase (decrease) in cash and cash equivalents
    
    
    1,971
    
    
    
    (35,246
    )Cash and cash equivalents, beginning of period
    
    
    188,114
    
    
    
    165,395Cash and cash equivalents, end of period
    
    $
    190,085
    
    
    $
    130,149Supplementary cash flow information:Interest paid
    
    $
    
    
    
    $
    Income taxes paid
    
    
    10
    
    
    
    1,759
  3




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##### Table of Contents



QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 (Unaudited)
 (All amounts except share
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulatedand per share information are
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Totalexpressed in thousands of
    
    Common Shares
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersU.S. dollars)
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    Income (Loss)
    
    
    EquityBalance at December 31,
2008
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    123,367
    
    
    $
    97,206
    
    
    $
    (579,564
    )
    
    $
    
    
    
    $
    343,230Exercise of stock
options, for cash, at
prices ranging from CAD
$2.44 to CAD $3.73 per
share and U.S. $3.78 per
share
    
    
    35,751
    
    
    
    170
    
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,266Common share repurchase
    
    
    (20,866,790
    )
    
    
    (196,368
    )
    
    
    150,004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,364
    )Other comprehensive
income:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,763
    
    
    
    
    
    
    
    5,763
    
    
    
    5,763Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,434
    
    
    
    99,434
    
    
    
    99,434Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,197
    
    
    
    Balance at December 31,
2009
    
    
    53,789,289
    
    
    $
    506,023
    
    
    $
    275,592
    
    
    $
    102,969
    
    
    $
    (480,130
    )
    
    $
    
    
    
    $
    404,454Exercise of stock
options, for cash, at
CAD $3.73 per share
    
    
    11,667
    
    
    
    58
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    561
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561Common share repurchase
    
    
    (229,100
    )
    
    
    (2,155
    )
    
    
    978
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,177
    )Other comprehensive
income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,403
    
    
    
    3,403
    
    
    
    3,403Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,403
    
    
    
    Balance at March 31, 2010
    
    
    53,571,856
    
    
    $
    503,926
    
    
    $
    277,116
    
    
    $
    102,969
    (1)
    
    $
    (476,727
    )
    
    $
    
    
    
    $
    407,284
 (1)
    
    At March 31, 2010 our accumulated other comprehensive income is entirely related to prior
years 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
  ®
  Reporting Currency and Functional Currency Change
   Principles of Consolidation
   5




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##### Table of Contents



Use of Estimates
  Segment Information
  Revenue Recognition
  Net Product Revenue
   Royalties
  Discontinued Operations
   6




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##### Table of Contents



Discontinued Operations
   Income Taxes
  Contingent Consideration
  Net Income (Loss) Per Common Share
   Three months ended(In thousands of U.S. dollars, except
    
    March 31,share and per share data)
    
    2010
    
    
    2009Numerator:Income (loss) from continuing operations
    
    $
    3,403
    
    
    $
    (3,261
    )Income from discontinued operations,
net of income taxes
    
    
    
    
    
    
    4,562Net income
    
    $
    3,403
    
    
    $
    1,301Denominator: (thousands)Weighted average common shares
outstanding
    
    
    53,717
    
    
    
    61,287Effect of dilutive securities:Stock options
    
    
    653
    
    
    
    Diluted weighted average common shares
outstanding (thousands)
    
    
    54,370
    
    
    
    61,287Basic net income (loss) per common shareContinuing operations
    
    $
    0.06
    
    
    $
    (0.05
    )Discontinued operations
    
    
    
    
    
    
    0.07Net income (loss)
    
    $
    0.06
    
    
    $
    0.02Diluted net income per common shareContinuing operations
    
    $
    0.06
    
    
    $
    (0.05
    )Discontinued operations
    
    
    
    
    
    
    0.07Net income
    
    $
    0.06
    
    
    $
    0.02
   7




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##### Table of Contents



Fair Value of Financial Assets and Liabilities
  Subsequent Events
  Recently Issued Accounting Standards
 Revenue Arrangements with Multiple Deliverables
 Milestone Method of
Revenue Recognition
 Recently Adopted Accounting Standards
 Accounting for Transfers of Financial Assets, an
amendment of FASB Statement No. 140
 Amending FASB interpretation No. 46(R)
 Amendments to Certain Recognition and Disclosure
Requirements
  8




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##### Table of Contents



2. INVENTORIES
 (In thousands of U.S. dollars)
    
    March 31, 2010
    
    
    December 31, 2009Raw materials and supplies
    
    $
    261
    
    
    $
    231Work-in-process
    
    
    29,782
    
    
    
    29,782Finished goods
    
    
    434
    
    
    
    Provision for excess inventory
    
    
    (11,560
    )
    
    
    (11,560
    )Provision for non-completion of inventory
    
    
    (2,185
    )
    
    
    (2,185
    )16,732
    
    
    
    16,268Long-term inventory, net of provisions
    
    
    (13,599
    )
    
    
    (13,394
    )$
    3,133
    
    
    $
    2,874
    3. OTHER CURRENT ASSETS
 (In thousands of U.S. dollars)
    
    March 31, 2010
    
    
    December 31, 2009Inventory in transit previously held by Novartis
    
    $
    
    
    
    $
    5,030Prepaid expenses and other
    
    
    1,762
    
    
    
    1,022$
    1,762
    
    
    $
    6,052
  4. LONG-TERM INVENTORIES AND OTHER ASSETS
 (In thousands of U.S. dollars)
    
    March 31, 2010
    
    
    December 31, 2009Inventory, net of provisions
    
    $
    13,599
    
    
    $
    13,394Other
    
    
    1,541
    
    
    
    1,531$
    15,140
    
    
    $
    14,925
  9




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5. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    March 31, 2010
    
    
    December 31, 2009Royalties
    
    $
    1,070
    
    
    $
    1,273Compensation
    
    
    2,263
    
    
    
    3,715Interest
    
    
    
    
    
    
    10Other
    
    
    248
    
    
    
    576$
    3,581
    
    
    $
    5,574
 6. FOREIGN EXCHANGE FACILITY
  7. SHARE CAPITAL
     Three months endedMarch 31,2010
    
    
    2009Annualized volatility
    
    
    55.1
    %
    
    
    Risk-free interest rate
    
    
    2.5
    %
    
    
    Expected life (years)
    
    
    3.6
    
    
    
    
    10




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Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2010
    
    
    2009Cost of sales
    
    $
    120
    
    
    $
    4Research and development
    
    
    309
    
    
    
    227Selling, general and administrative
    
    
    253
    
    
    
    289Discontinued operations
    
    
    
    
    
    
    (38
    )Stock-based compensation expense before
income taxes
    
    
    682
    
    
    
    482Related income tax benefits
    
    
    (8
    )
    
    
    (13
    )Stock-based compensation, net of income taxes
    
    $
    674
    
    
    $
    469
  8. NET PRODUCT REVENUE
  Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2009Visudyne sales by Novartis
    
    $
    27,754Less: Marketing and distribution costs
    
    
    (8,687
    )Less: Inventory costs
    
    
    (1,656
    )Less: Royalties to third parties
    
    
    (602
    )$
    16,809QLTs 50% share of Novartis net proceeds from Visudyne
sales, for the prior period
    
    $
    8,404Add: Advance on inventory costs from Novartis
    
    
    1,943Add: Royalties reimbursed to QLT
    
    
    612Add: Other costs reimbursed to QLT
    
    
    824Net product revenue from Visudyne sales
    
    $
    11,783
  Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2010U.S. Visudyne sales by QLT
    
    $
    5,045Visudyne sales to Novartis
    
    
    4,989Add: Royalties reimbursed to QLT
    
    
    327Add: Other costs reimbursed to QLT
    
    
    109Net product revenue from Visudyne sales
    
    $
    10,470
  11




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##### Table of Contents



9. DISCONTINUED OPERATIONS
    Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2010
    
    
    2009Product revenue and other
    
    $
    
    
    
    $
    9,402Royalty revenue
    
    
    
    
    
    
    8,907Net revenue
    
    
    
    
    
    
    18,309Operating pre-tax income
    
    
    
    
    
    
    7,166Pre-tax income
    
    
    
    
    
    
    7,166Provision for income taxes
    
    
    
    
    
    
    (2,604
    )Net income from discontinued operations
    
    $
    
    
    
    $
    4,562
 10. CONTINGENT CONSIDERATION
  11. INCOME TAXES
    12




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12. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
   Carrying Value
    
    
    Fair Value Measurements at March 31, 2010(In thousands of U.S. dollars)
    
    March 31, 2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash and cash equivalents
    
    $
    190,085
    
    
    $
    190,085
    
    
    $
    
    
    
    $
    Contingent consideration(1)
    
    
    143,234
    
    
    
    
    
    
    
    
    
    
    
    143,234Total
    
    $
    333,319
    
    
    $
    190,085
    
    
    $
    
    
    
    $
    143,234
 (1)
    
    To estimate the fair value of contingent consideration at March 31, 2010, 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 all
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 $3.0 million, from $143.2 million to $140.2
million. If estimated future revenues were to decrease by 10%, the contingent
consideration would decrease by $3.5 million, from $143.2 million to $139.7 million.  (In thousands of U.S. dollars)
    
    Level 3Balance at December 31, 2008
    
    $
    Transfers to Level 3
    
    
    156,240Settlements
    
    
    (8,441
    )Fair value change in contingent consideration
    
    
    3,279Balance at December 31, 2009
    
    $
    151,078Transfers to Level 3
    
    
    Settlements
    
    
    (10,287
    )Fair value change in contingent consideration
    
    
    2,443Balance at March 31, 2010
    
    $
    143,234
  13




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.
      13. CONTINGENCIES
   14




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Note regarding Trademarks
  
    
    Visudyne® is a registered trademark of Novartis AG.
 
    
    Eligard® is a registered trademark of Sanofi-Aventis Corp.
 
    
    Aczone® is a registered trademark of Allergan, Inc.
 
    
    Lucentis® is a registered trademark of Genentech, Inc.
 
    

Atrigel®
is a registered trademark of TOLMAR Therapeutics, Inc.
 OVERVIEW
 ®
 ® ® ®
 Products, Revenues and Other Sources of Funds
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Research and Development
  Punctal Plug Drug Delivery System for the treatment of glaucoma and allergic conjunctivitis.
 Visudyne combined with Anti-VEGF drugs for the treatment of wet AMD. ®
 QLT091001 for the treatment of Leber Congenital Amaurosis. cis
 QLT091568 for the treatment of glaucoma and ocular hypertension.
 RESULTS OF OPERATIONS
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Revenues
  Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2009Visudyne sales by Novartis
    
    $
    27,754Less: Marketing and distribution costs(1)
    
    
    (8,687
    )Less: Inventory costs(2)
    
    
    (1,656
    )Less: Royalties to third parties(3)
    
    
    (602
    )$
    16,809QLTs 50% share of Novartis net proceeds from Visudyne
sales, for the prior period
    
    $
    8,404Add: Advance on inventory costs from Novartis(4)
    
    
    1,943Add: Royalties reimbursed to QLT(5)
    
    
    612Add: Other costs reimbursed to QLT(6)
    
    
    824Net product revenue from Visudyne sales
    
    $
    11,783
  Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2010U.S. Visudyne sales by QLT
    
    $
    5,045Visudyne sales to Novartis
    
    
    4,989Add: Royalties reimbursed to QLT(5)
    
    
    327Add: Other costs reimbursed to
QLT(6)
    
    
    109Net product revenue from Visudyne sales
    
    $
    10,470
  (1)
    
    Less: Marketing and distribution costsThis represented Novartis cost of marketing, promoting, and distributing Visudyne, as well as
certain specified costs incurred and paid for by QLT, determined in accordance with the PDT
Agreement between QLT and Novartis. The costs incurred by Novartis were related to its sales
force, advertising expenses, marketing, and certain administrative overhead costs. The costs
incurred by us included marketing support, legal and administrative expenses that we incurred
in support of Visudyne sales.(2)
    
    Less: Inventory costsThis represented Novartis cost of goods sold related to Visudyne. It included the cost of
bulk Visudyne we shipped to Novartis and our previous provisions for excess or obsolete
inventory, losses on manufacturing purchase commitments, plus Novartis packaging and
labelling costs, freight, custom duties and inventory obsolescence.  17




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(3)
    
    Less: Royalties to third partiesThis represented the royalty expenses we incurred and charged to Novartis pursuant to the PDT
Agreement between QLT and Novartis. The amounts were calculated by us based on specified
royalty rates from license agreements with our licensors of certain Visudyne patent rights.(4)
    
    Add: Advance on inventory costs from NovartisThis represented the amount that Novartis advanced to us for shipments of bulk Visudyne and
reimbursement for inventory obsolescence. The price of the Visudyne shipments was determined
based on the PDT Agreement between QLT and Novartis and represented our actual costs of
producing Visudyne.(5)
    
    Add: Royalties reimbursed to QLTFor previous periods, this represented the amounts we received from Novartis in reimbursement
for the actual royalty expenses we incurred with third party licensors on worldwide Visudyne
sales. For periods commencing after December 31, 2009, 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.(6)
    
    Add: Other costs reimbursed to QLTFor previous periods, this represented reimbursement by Novartis to us of our portion of the
marketing and distribution costs described in (1) above. Our marketing and distribution costs
included marketing support, legal and administrative expenses that we incurred in support of
Visudyne sales. For the periods commencing after December 31, 2009, this represents certain
administrative expenses we incur on behalf of Novartis under the Amended PDT Agreement.  Royalties
  Costs and Expenses
 Cost of Sales
  Research and Development
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
    
    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,
    
    delays in study progression, including study site, Institutional Review Board and
regulatory delays,
    
    positive study progression and results,
    
    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 endedMarch 31,(In thousands of U.S. dollars)
    
    2010
    
    
    2009Ocular
    
    $
    7,165
    
    
    $
    5,712Dermatology
    
    
    
    
    
    
    10Other
    
    
    182
    
    
    
    164$
    7,347
    
    
    $
    5,886
 Selling, General and Administrative Expenses
  Investment and Other Income (Expense)
 Net Foreign Exchange Gains
  Interest Income
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Interest Expense
  Income from Discontinued Operations
  Income Taxes
    LIQUIDITY AND CAPITAL RESOURCES
 General
   Sources and Uses of Cash
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
    
    A negative operating cash flow variance from lower cash receipts from product sales and
royalties of $25.9 million due to the divestiture of the Eligard product line as part of
the sale of QLT USA;
 
    
    A negative operating cash flow variance from lower foreign exchange gains of $4.9
million;
 
    
    A negative operating cash flow variance from lower net tax refunds of $1.2 million;
 
    
    A negative operating cash flow variance from lower investment and other income of $0.3
million;
 
    
    A positive operating cash flow variance from lower operating and inventory related
expenditures of $7.5 million due to the divestiture of the Eligard product line as part of
the sale of QLT USA;
 
    
    A positive operating cash flow variance from proceeds related to the fair value change
in contingent consideration of $2.4 million; and
 
    
    A positive operating cash flow variance from lower restructuring costs of $0.5 million.
   Interest and Foreign Exchange Rates
    Contractual Obligations
  Off-Balance Sheet Arrangements
   Recently Issued and Recently Adopted Accounting Standards
   21




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Outstanding Share Data
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Revenue Recognition
  Net Product Revenue
    Vendor Charge-backs
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Cash discounts
  Medicaid rebates
  Product returns
  Royalties
  Discontinued Operations
  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    levels of future sales of Visudyne, including the impact of competition;
 
    
    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.;
  23




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##### Table of Contents




    
    our continued ability to supply Visudyne to our customers;
 
    
    our expectations regarding Visudyne label changes, reimbursement and sales;
 
    
    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.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
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Changes in Internal Control over Financial Reporting
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
   Our revenues depend on coverage and reimbursement from third party payors and pricing, and if third
party payors reduce or refuse coverage or reimbursement or if prices are reduced, the use and sales
of our products will suffer, we may not increase our market share, and our revenues and
profitability will suffer.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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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, 2010
through January 31,
2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,864,744February 1, 2010
through February
28, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,864,744March 1, 2010
through March 31,
2010
    
    
    229,100
    
    
    $
    5.08
    
    
    
    229,100
    
    
    
    1,635,644Total
    
    
    229,100
    
    
    $
    5.08
    
    
    
    229,100
    
    
    
    1,635,644
 
 ITEM 6. EXHIBITS
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SIGNATURES
  QLT Inc.
(Registrant)Date: May 6, 2010
    By:
    /s/ Robert L. ButchofskyRobert L. ButchofskyPresident and  Chief Executive Officer

(Principal Executive Officer)Date: May 6, 2010
    By:
    /s/ Cameron R. NelsonCameron R. NelsonVice President, Finance and Chief Financial Officer

(Principal Financial and Accounting Officer)  29




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EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    
    Rule 13a-14(a) Certification of the Chief Executive Officer.31.2
    
    
    Rule 13a-14(a) Certification of the Chief Financial Officer.32.1
    
    
    Section 1350 Certification of the Chief Executive Officer.32.2
    
    
    Section 1350 Certification of the Chief Financial Officer.10.52
    
    
    Distribution Services Agreement dated effective as of January 1,
2010, by and between QLT Ophthalmics, Inc. and ASD Specialty
Healthcare, Inc. d/b/a Besse Medical.
  30