##### 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, 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
 *
    
    The registrant has not yet been phased into the interactive data requirements.  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, 2009
 TABLE OF CONTENTS
 ITEM
    
    PAGEPART I  FINANCIAL INFORMATION1. FINANCIAL STATEMENTS
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of
March 31, 2009 and December 31, 2008
    
    
    1Unaudited Condensed Consolidated Statements of Operations for the three
months ended March 31, 2009 and March 31, 2008
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2009 and March 31, 2008
    
    
    3Unaudited Condensed Consolidated Statement of Changes in Shareholders Equity
for the three months ended March 31, 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
    
    
    244. CONTROLS AND PROCEDURES
    
    
    24PART II  OTHER INFORMATION1. LEGAL PROCEEDINGS
    
    
    251A. RISK FACTORS
    
    
    252. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    256. EXHIBITS
    
    
    25Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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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, 2009
    
    
    December 31, 2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    130,149
    
    
    $
    165,395Restricted cash (Note 13)
    
    
    124,847
    
    
    
    124,578Accounts receivable
    
    
    24,634
    
    
    
    31,096Income taxes receivable
    
    
    47,009
    
    
    
    50,899Inventories (Note 2)
    
    
    9,105
    
    
    
    11,633Current portion of deferred income tax assets
    
    
    7,683
    
    
    
    9,835Other (Note 3)
    
    
    8,581
    
    
    
    11,144352,008
    
    
    
    404,580Property, plant and equipment
    
    
    2,753
    
    
    
    3,184Deferred income tax assets
    
    
    29,319
    
    
    
    30,216Goodwill
    
    
    23,145
    
    
    
    23,145Mortgage receivable
    
    
    9,525
    
    
    
    9,834Long-term inventories and other assets (Note 4)
    
    
    21,574
    
    
    
    20,799$
    438,324
    
    
    $
    491,758LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    8,701
    
    
    $
    9,115Accrued restructuring charge (Note 7)
    
    
    177
    
    
    
    726Accrued liabilities (Note 5)
    
    
    129,804
    
    
    
    129,512Current portion of deferred revenue
    
    
    5,245
    
    
    
    5,673143,927
    
    
    
    145,026Uncertain tax position liabilities
    
    
    1,815
    
    
    
    2,033Deferred revenue
    
    
    1,102
    
    
    
    1,469146,844
    
    
    
    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
    
    
    
    702,221March 31, 2009  54,620,328 sharesDecember 31, 2008  74,620,328 sharesAdditional paid-in capital
    
    
    267,906
    
    
    
    123,367Accumulated deficit
    
    
    (578,263
    )
    
    
    (579,564
    )Accumulated other comprehensive income
    
    
    87,828
    
    
    
    97,206291,480
    
    
    
    343,230$
    438,324
    
    
    $
    491,758
   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)
    
    2009
    
    
    2008RevenuesNet product revenue (Note 9)
    
    $
    20,817
    
    
    $
    20,016Royalties
    
    
    8,907
    
    
    
    6,301Licensing, milestones and other
    
    
    367
    
    
    
    37730,091
    
    
    
    26,694Costs and expensesCost of sales
    
    
    12,998
    
    
    
    11,757Research and development
    
    
    5,886
    
    
    
    8,048Selling, general and administrative
    
    
    5,202
    
    
    
    7,164Depreciation
    
    
    344
    
    
    
    1,022Litigation (Note 12)
    
    
    334
    
    
    
    Restructuring (Note 7)
    
    
    (123
    )
    
    
    7,59824,641
    
    
    
    35,589Operating income (loss)
    
    
    5,450
    
    
    
    (8,895
    )Investment and other income (expense)Net foreign exchange gains
    
    
    49
    
    
    
    254Interest income
    
    
    1,377
    
    
    
    2,318Interest expense
    
    
    (1,503
    )
    
    
    (3,028
    )Other gains
    
    
    64
    
    
    
    153(13
    )
    
    
    (303
    )Income (loss) from continuing operations before income taxes
    
    
    5,437
    
    
    
    (9,198
    )(Provision for) recovery of income taxes
    
    
    (4,136
    )
    
    
    164Income (loss) from continuing operations
    
    
    1,301
    
    
    
    (9,034
    )(Loss) from discontinued operations, net of income taxes (Note 10)
    
    
    
    
    
    
    (1,437
    )Net income (loss)
    
    $
    1,301
    
    
    $
    (10,471
    )Basic net income (loss) per common shareContinuing operations
    
    $
    0.02
    
    
    $
    (0.12
    )Discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income (loss)
    
    $
    0.02
    
    
    $
    (0.14
    )Diluted net income (loss) per common shareContinuing operations
    
    $
    0.02
    
    
    $
    (0.12
    )Discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income (loss)
    
    $
    0.02
    
    
    $
    (0.14
    )Weighted average number of common shares outstanding (thousands)Basic
    
    
    61,287
    
    
    
    74,620Diluted
    
    
    61,287
    
    
    
    74,620
  2




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QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)
 Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2009
    
    
    2008Cash used in operating activitiesNet income (loss)
    
    $
    1,301
    
    
    $
    (10,471
    )Adjustments to reconcile net income (loss) to net cash
from operating activitiesDepreciation
    
    
    344
    
    
    
    1,022Share-based compensation
    
    
    482
    
    
    
    1,355Amortization of deferred financing expenses
    
    
    
    
    
    
    343Unrealized foreign exchange gain
    
    
    2,033
    
    
    
    3,993Interest earned on restricted cash
    
    
    (267
    )
    
    
    (1,228
    )Deferred income taxes
    
    
    2,672
    
    
    
    (1,036
    )Loss on sale of property, plant and equipment
    
    
    
    
    
    
    17Impairment of property, plant and equipment
    
    
    
    
    
    
    1,582Changes in non-cash operating assets and liabilitiesAccounts receivable
    
    
    6,276
    
    
    
    (40
    )Inventories
    
    
    1,128
    
    
    
    1,323Other current assets
    
    
    2,344
    
    
    
    (3,767
    )Accounts payable
    
    
    (539
    )
    
    
    (869
    )Income taxes receivable
    
    
    2,616
    
    
    
    185Accrued restructuring charge
    
    
    (540
    )
    
    
    1,175Other accrued liabilities
    
    
    397
    
    
    
    704Deferred revenue
    
    
    (666
    )
    
    
    (481
    )17,581
    
    
    
    (6,193
    )Cash provided by investing activitiesNet proceeds from sale of long-lived assets
    
    
    63
    
    
    
    Restricted cash
    
    
    
    
    
    
    2,307Purchase of property, plant and equipment
    
    
    (56
    )
    
    
    (182
    )Other acquisition related costs
    
    
    
    
    
    
    (30
    )7
    
    
    
    2,095Cash provided by financing activitiesCommon shares repurchased, including fees
    
    
    (51,887
    )
    
    
    (51,887
    )
    
    
    Effect of exchange rate changes on cash and cash equivalents
    
    
    (947
    )
    
    
    (2,666
    )Net decrease in cash and cash equivalents
    
    
    (35,246
    )
    
    
    (6,764
    )Cash and cash equivalents, beginning of period
    
    
    165,395
    
    
    
    126,731Cash and cash equivalents, end of period
    
    $
    130,149
    
    
    $
    119,967Supplementary cash flow information:Interest paid
    
    $
    
    
    
    $
    2,588Income taxes paid
    
    
    1,759
    
    
    
    23
  3




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QLT Inc.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY  (Unaudited)
 AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TotalCommon Shares
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity(All amounts except share and per share information are expressed in thousands of U.S. dollars)Balance 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
    (1)
    
    $
    (578,263
    )
    
    $
    
    
    
    $
    291,480
 (1)
    
    At March 31, 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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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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Segment Information
  Revenue Recognition
 Net Product Revenue
     Royalties
  Discontinued Operations
   Income Taxes
   6




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##### Table of Contents



Contingencies Related to Legal Proceedings
  Net Income (Loss) Per Common Share
   Three months ended(In thousands of U.S. dollars, except
    
    March 31,share and per share data)
    
    2009
    
    
    2008Numerator:Income (loss) from continuing operations
    
    $
    1,301
    
    
    $
    (9,034
    )Loss from discontinued operations, net
of income taxes
    
    
    
    
    
    
    (1,437
    )Net income (loss)
    
    $
    1,301
    
    
    $
    (10,471
    )Effect of dilutive securities:Convertible senior notes  interest
expense
    
    
    
    
    
    
    Adjusted income (loss)
    
    $
    1,301
    
    
    $
    (10,471
    )Denominator: (thousands)Weighted average common shares outstanding
    
    
    61,287
    
    
    
    74,620Effect of dilutive securities:Stock options
    
    
    
    
    
    
    Convertible senior notes
    
    
    
    
    
    
    Diluted potential common shares
    
    
    
    
    
    
    Diluted weighted average common shares
outstanding
    
    
    61,287
    
    
    
    74,620Basic net income (loss) per common shareContinuing operations
    
    $
    0.02
    
    
    $
    (0.12
    )Discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income (loss)
    
    $
    0.02
    
    
    $
    (0.14
    )Diluted net income (loss) per common shareContinuing operations
    
    $
    0.02
    
    
    $
    (0.12
    )Discontinued operations
    
    
    
    
    
    
    (0.02
    )Net income (loss)
    
    $
    0.02
    
    
    $
    (0.14
    )
   7




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Fair Value of Financial Assets and Liabilities
  Recently Issued Accounting Standards
 Business Combinations,
 Noncontrolling Interests in Consolidated Financial
Statements  an amendment of Accounting Research Bulletin No. 51,
 Effective Date of FASB Statement No. 157,
 Disclosures about Derivative Instruments and Hedging
Activities-an amendment of SFAS 133, Accounting for Derivative Instruments and Hedging
Activities,
 The Hierarchy of Generally Accepted Accounting Principles
  8




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Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed,
 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
 2. INVENTORIES
 (In thousands of U.S. dollars)
    
    March 31, 2009
    
    
    December 31, 2008Raw materials and supplies
    
    $
    4,646
    
    
    $
    6,308Work-in-process
    
    
    29,256
    
    
    
    30,445Finished goods
    
    
    1,185
    
    
    
    256Provision for excess inventory
    
    
    (2,393
    )
    
    
    (2,471
    )Provision for non-completion of product inventory
    
    
    (3,609
    )
    
    
    (3,735
    )29,085
    
    
    
    30,803Less: Long-term inventory, net of provisions
    
    
    19,980
    
    
    
    19,170$
    9,105
    
    
    $
    11,633
    9




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3. OTHER CURRENT ASSETS
 (In thousands of U.S. dollars)
    
    March 31, 2009
    
    
    December 31, 2008Inventory in transit held by Novartis
    
    $
    5,180
    
    
    $
    5,555Foreign exchange contracts
    
    
    791
    
    
    
    3,542Prepaid expenses and other
    
    
    2,610
    
    
    
    2,047$
    8,581
    
    
    $
    11,144
  4. LONG-TERM INVENTORIES AND OTHER ASSETS
 (In thousands of U.S. dollars)
    
    March 31, 2009
    
    
    December 31, 2008Inventory, net of provisions
    
    $
    19,980
    
    
    $
    19,170Other
    
    
    1,594
    
    
    
    1,629$
    21,574
    
    
    $
    20,799
 5. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    March 31, 2009
    
    
    December 31, 2008Litigation charge  MEEI judgment (Note 12)
    
    $
    127,455
    
    
    $
    125,119Royalties
    
    
    604
    
    
    
    713Compensation
    
    
    1,700
    
    
    
    3,257Interest
    
    
    41
    
    
    
    418Other
    
    
    4
    
    
    
    5$
    129,804
    
    
    $
    129,512
 6. FOREIGN EXCHANGE FACILITIES
  7. RESTRUCTURING CHARGE
   10




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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
    
    $
    177
 (1)
    
    Costs include severance, termination benefits, and outplacement support.(2)
    
    Non-cash portion is stock-based compensation. 8. SHARE CAPITAL
       Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2009
    
    
    2008Cost of sales
    
    $
    9
    
    
    $
    28Research and development
    
    
    227
    
    
    
    328Selling, general and administrative
    
    
    315
    
    
    
    441Restructuring
    
    
    (69
    )
    
    
    537Discontinued operations
    
    
    
    
    
    
    29Stock-based compensation expense before
income taxes
    
    
    482
    
    
    
    1,363Related income tax benefits
    
    
    (13
    )
    
    
    (26
    )Stock-based compensation, net of income taxes
    
    $
    469
    
    
    $
    1,337
  11




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9. NET PRODUCT REVENUE
  Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2009
    
    
    2008Visudyne sales by Novartis
    
    $
    27,754
    
    
    $
    36,480Less: Marketing and distribution costs
    
    
    (8,687
    )
    
    
    (18,032
    )Less: Inventory costs
    
    
    (1,656
    )
    
    
    (1,989
    )Less: Royalties to third parties
    
    
    (602
    )
    
    
    (779
    )$
    16,809
    
    
    $
    15,680QLTs 50% share of Novartis net proceeds from
Visudyne sales
    
    $
    8,404
    
    
    $
    7,840Add: Advance on inventory costs from Novartis
    
    
    1,943
    
    
    
    1,355Add: Royalties reimbursed to QLT
    
    
    612
    
    
    
    797Add: Other costs reimbursed to QLT
    
    
    820
    
    
    
    1,912Revenue from Visudyne sales
    
    $
    11,779
    
    
    $
    11,904Net product revenue from Eligard
    
    
    9,038
    
    
    
    8,112$
    20,817
    
    
    $
    20,016
  10. DISCONTINUED OPERATIONS
   Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2009
    
    
    2008Net revenue
    
    $
    
    
    
    $
    Pre-tax loss
    
    
    
    
    
    
    (2,318
    )Recovery of income taxes
    
    
    
    
    
    
    881Net loss from discontinued operations
    
    $
    
    
    
    $
    (1,437
    )
  12




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11. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
   Carrying Value
    
    
    Fair Value Measurements at March 31, 2009March 31, 2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash and cash equivalents
    
    $
    130,149
    
    
    $
    130,149
    
    
    $
    
    
    
    $
    Restricted cash
    
    
    124,847
    
    
    
    124,847
    
    
    
    
    
    
    
    Forward currency contracts(1)
    
    
    791
    
    
    
    
    
    
    
    791
    
    
    
    Total
    
    $
    255,787
    
    
    $
    254,996
    
    
    $
    791
    
    
    $
    
 .
 Maturity Period
    
    
    Quantity (millions)
    
    
    Average PriceCAD / USDforward contracts to buy USD
    
    
    2009
    
    
    USD 73.0
    
    
    1.24615 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.    12. CONTINGENCIES
   13




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(a) Eligard Patent Litigation
       (b) Patent Litigation with MEEI; Litigation with MGH
      14




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13. Subsequent Events
   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
    RESULTS OF OPERATIONS
   16




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Revenues
 Net Product Revenue
  Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2009
    
    
    2008Visudyne sales by Novartis
    
    $
    27,754
    
    
    $
    36,480Less: Marketing and distribution costs(1)
    
    
    (8,687
    )
    
    
    (18,032
    )Less: Inventory costs(2)
    
    
    (1,656
    )
    
    
    (1,989
    )Less: Royalties to third parties(3)
    
    
    (602
    )
    
    
    (779
    )$
    16,809
    
    
    $
    15,680QLTs 50% share of Novartis net proceeds from Visudyne
sales
    
    $
    8,404
    
    
    $
    7,840Add: Advance on inventory costs from
Novartis(4)
    
    
    1,943
    
    
    
    1,355Add: Royalties reimbursed to QLT(5)
    
    
    612
    
    
    
    797Add: Other costs reimbursed to QLT(6)
    
    
    820
    
    
    
    1,912Revenue from Visudyne sales
    
    $
    11,779
    
    
    $
    11,904Net product revenue from Eligard
    
    
    9,038
    
    
    
    8,112$
    20,817
    
    
    $
    20,016
 (1)
    
    Less: Marketing and distribution costsThis represents 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
Product Development, Manufacturing, and Distribution Agreement between QLT and Novartis. The
costs incurred by Novartis are related to its sales force, advertising expenses, marketing,
and certain administrative overhead costs. The costs incurred by us include marketing
support, legal and administrative expenses that we incur in support of Visudyne sales.(2)
    
    Less: Inventory costsThis represents Novartis cost of goods sold related to Visudyne. It includes the cost of
bulk Visudyne we ship to Novartis and our provisions for excess or obsolete inventory, losses
on manufacturing purchase commitments, plus Novartis packaging and labelling costs, freight,
custom duties and inventory obsolescence.(3)
    
    Less: Royalties to third partiesThis represents the royalty expenses we incur and charge to Novartis pursuant to the PDT
Product Development, Manufacturing and Distribution Agreement between QLT and Novartis. The
amounts are calculated by us based on specified royalty rates from existing license agreements
with our licensors of certain Visudyne patent rights.(4)
    
    Add: Advance on inventory costs from NovartisThis represents the amount that Novartis advances to us for shipments of bulk Visudyne and
reimbursement for inventory obsolescence. The price of the Visudyne shipments is determined
based on the existing agreement between QLT and Novartis and represents our actual costs of
producing Visudyne.(5)
    
    Add: Royalties reimbursed to QLTThis is related to item (3) above and represents the amounts we receive from Novartis in
reimbursement for the actual royalty expenses we owe to third party licensors.(6)
    
    Add: Other costs reimbursed to QLT This represents reimbursement by Novartis to us of our portion of the marketing and
distribution costs described in (1) above. Our marketing and distribution costs include
marketing support, legal and administrative expenses that we incur in support of Visudyne
sales.  17




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Royalties
  Costs and Expenses
 Cost of Sales
   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,
  18




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##### Table of Contents




    
    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 endedMarch 31,(In thousands of U.S. dollars)
    
    2009
    
    
    2008Ocular
    
    $
    5,712
    
    
    $
    6,708Dermatology
    
    
    10
    
    
    
    1,274Other
    
    
    164
    
    
    
    66$
    5,886
    
    
    $
    8,048
 Selling, General and Administrative Expenses
  Litigation
  Restructuring Charge
  Investment and Other Income (Expense)
 Net Foreign Exchange Gains
   19




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Three months endedMarch 31,(In thousands of U.S. dollars)
    
    2009
    
    
    2008Cash and cash equivalents
    
    $
    2,501
    
    
    $
    1,902Restricted cash
    
    
    2,622
    
    
    
    3,246U.S. dollar convertible debt
    
    
    
    
    
    
    (4,585
    )Foreign exchange contracts
    
    
    1,108
    
    
    
    2,059Foreign currency receivables and payables
    
    
    (6,182
    )
    
    
    (2,368
    )Net foreign exchange gains
    
    $
    49
    
    
    $
    254
 Interest Income
  Interest Expense
  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
    20




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
    
    A positive cash flow variance from higher cash receipts from product sales, royalties
and milestones of $7.5 million;
    
    A positive cash flow variance from lower operating and inventory related expenditures of
$7.2 million;
    
    A positive cash flow variance from lower restructuring costs of $3.9 million;
    
    A positive cash flow variance from a tax refund of $2.9 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 $2.3 million;
and
    
    A negative cash flow variance from tax installments of $1.7 million.
   Interest and Foreign Exchange Rates
     Maturity Period
    
    
    Quantity (millions)
    
    
    Average PriceCAD / USDforward contracts to buy USD
    
    
    2009
    
    
    USD 73.0
    
    
    1.24615 per USD
 Contractual Obligations
   21




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Off-Balance Sheet Arrangements
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   22




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Recently Issued and Recently Adopted Accounting Standards
  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    anticipated levels of future sales of our products;
    
    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 expectations as to the outcome of the German Eligard patent litigation commenced
against QLT USA, Inc.s German licensees by Takeda Chemical Industries Ltd. and Takeda
Pharma GmbH;
    
    our dependency on contract manufacturers and suppliers to manufacture our products at
competitive prices and in accordance with FDA and other local and foreign regulatory
requirements as well as our product specifications;
    
    our expectations regarding future tax liability as a result of changes in estimates of
prior years tax items and results of tax audits by tax authorities;
    
    our expectations regarding our timing and ability to sell 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.
   23




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
        24




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   Issuer Purchases of Equity SecuritiesTotal Number of
    
    
    Maximum NumberTotal
    
    
    
    
    
    
    Shares Purchased as
    
    
    of Shares that MayNumber of
    
    
    Average
    
    
    Part of Publicly
    
    
    Yet Be PurchasedShares
    
    
    Price Paid
    
    
    Announced Plans or
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    Programs
    
    
    ProgramsJanuary 1, 2009
through January 31,
2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 1, 2009
through February
28, 2009
    
    
    20,000,000
    
    
    $
    2.50
    
    
    
    20,000,000
    
    
    
    March 1, 2009
through March 31,
2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    20,000,000
    
    
    $
    2.50
    
    
    
    20,000,000
    
    
    
    
 
 ITEM 6. EXHIBITS
   25




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SIGNATURES
  QLT Inc.
(Registrant)Date: May 5, 2009
    By:
    /s/ Robert L. ButchofskyRobert L. ButchofskyPresident and  Chief Executive Officer
(Principal Executive Officer)Date: May 5, 2009
    By:
    /s/ Cameron R. NelsonCameron R. NelsonVice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)  26




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##### 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.
  27