UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2008
 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.)887 Great Northern Way, Vancouver, B.C., Canada
    
    V5T 4T5(Address of principal executive offices)
    
    (Zip code)
 (604) 707-7000
 þ o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



QLT INC.
 QUARTERLY REPORT ON FORM 10-Q
September 30, 2008
 TABLE OF CONTENTS
 ITEM
    
    
    
    PAGEPART I  FINANCIAL INFORMATION1.
    
    FINANCIAL STATEMENTS
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of
September 30, 2008 and December 31, 2007
    
    
    1Unaudited Condensed Consolidated Statements of Income for the three and nine
months ended September 30, 2008 and September 30, 2007
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the three and nine
months ended September 30, 2008 and September 30, 2007
    
    
    3Unaudited Condensed Consolidated Statement of Changes in Shareholders
Equity and Comprehensive
Income for the three and nine months ended September 30, 2008
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    52.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    223.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    324.
    
    CONTROLS AND PROCEDURES
    
    
    34PART II  OTHER INFORMATION1.
    
    LEGAL PROCEEDINGS
    
    
    351A.
    
    RISK FACTORS
    
    
    352.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    486.
    
    EXHIBITS
    
    
    48




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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)
    
    September 30, 2008
    
    December 31, 2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    155,945
    
    
    $
    126,731Restricted cash
    
    
    123,964
    
    
    
    123,495Accounts receivable
    
    
    29,834
    
    
    
    25,257Income taxes receivable
    
    
    64,523
    
    
    
    48,421Inventories (Note 2)
    
    
    12,433
    
    
    
    18,511Current portion of deferred income tax assets
    
    
    11,843
    
    
    
    19,392Other (Note 3)
    
    
    8,467
    
    
    
    11,930407,009
    
    
    
    373,737Property, plant and equipment
    
    
    3,943
    
    
    
    10,018Assets held for sale
    
    
    48
    
    
    
    42,732Deferred income tax assets
    
    
    31,375
    
    
    
    7,041Goodwill (Note 5)
    
    
    23,145
    
    
    
    94,903Mortgage receivable (Note 12)
    
    
    11,276
    
    
    
    Long-term inventories and other assets (Note 4)
    
    
    23,640
    
    
    
    20,556$
    500,436
    
    
    $
    548,987LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    9,144
    
    
    $
    8,486Accrued restructuring charge (Note 9)
    
    
    1,098
    
    
    
    153Accrued liabilities (Note 6)
    
    
    131,509
    
    
    
    123,294Convertible debt (Note 7)
    
    
    
    
    
    
    172,500Current portion of deferred revenue
    
    
    7,459
    
    
    
    8,431Current portion of deferred income tax liabilities
    
    
    
    
    
    
    11,291149,210
    
    
    
    324,155Uncertain tax position liabilities
    
    
    2,122
    
    
    
    2,070Deferred revenue
    
    
    1,837
    
    
    
    2,939153,169
    
    
    
    329,164CONTINGENCIES (Note 15)SHAREHOLDERS EQUITYShare capital (Note 10)Authorized500,000,000 common shares without par value5,000,000 first preference shares without par
value, issuable in seriesIssued and outstandingCommon shares
    
    
    702,221
    
    
    
    702,221September 30, 2008  74,620,328 sharesDecember 31, 2007  74,620,328 sharesAdditional paid in-capital
    
    
    122,676
    
    
    
    119,779Accumulated deficit
    
    
    (585,438
    )
    
    
    (714,455
    )Accumulated other comprehensive income
    
    
    107,808
    
    
    
    112,278347,267
    
    
    
    219,823$
    500,436
    
    
    $
    548,987
  1




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##### 



QLT Inc.  CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (Unaudited)
 Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,(In thousands of U.S. dollars except share and per share information)
    
    2008
    
    2007
    
    2008
    
    2007RevenuesNet product revenue (Note 11)
    
    $
    10,868
    
    
    $
    14,606
    
    
    $
    36,462
    
    
    $
    54,170Costs and expensesCost of sales
    
    
    1,969
    
    
    
    2,805
    
    
    
    7,331
    
    
    
    9,432Accrued cost of sales re: MEEI (Note 15)
    
    
    1,020
    
    
    
    1,461
    
    
    
    3,332
    
    
    
    1,461Research and development
    
    
    6,887
    
    
    
    9,081
    
    
    
    23,049
    
    
    
    26,236Selling, general and administrative
    
    
    4,422
    
    
    
    5,990
    
    
    
    15,519
    
    
    
    15,980Depreciation
    
    
    464
    
    
    
    1,334
    
    
    
    2,566
    
    
    
    3,910Litigation
    
    
    
    
    
    
    265
    
    
    
    864
    
    
    
    110,162Gain on sale of long-lived assets (Note 12)
    
    
    (21,289
    )
    
    
    
    
    
    
    (21,289
    )
    
    
    Restructuring (Note 9)
    
    
    349
    
    
    
    174
    
    
    
    9,439
    
    
    
    668(6,178
    )
    
    
    21,110
    
    
    
    40,811
    
    
    
    167,849Operating income (loss)
    
    
    17,046
    
    
    
    (6,504
    )
    
    
    (4,349
    )
    
    
    (113,679
    )Investment and other (expense) incomeNet foreign exchange losses
    
    
    (296
    )
    
    
    (863
    )
    
    
    (58
    )
    
    
    (1,285
    )Interest income
    
    
    1,853
    
    
    
    3,818
    
    
    
    5,789
    
    
    
    11,163Interest expense
    
    
    (2,743
    )
    
    
    (2,735
    )
    
    
    (8,811
    )
    
    
    (5,965
    )Other gains
    
    
    26
    
    
    
    3,161
    
    
    
    288
    
    
    
    4,429(1,160
    )
    
    
    3,381
    
    
    
    (2,792
    )
    
    
    8,342Income (loss) from continuing operations before income taxes
    
    
    15,886
    
    
    
    (3,123
    )
    
    
    (7,141
    )
    
    
    (105,337
    )Recovery of (provision for) income taxes
    
    
    (3,749
    )
    
    
    1,316
    
    
    
    (144
    )
    
    
    36,233Income (loss) from continuing operations
    
    
    12,137
    
    
    
    (1,807
    )
    
    
    (7,285
    )
    
    
    (69,104
    )Income from discontinued operations, net of income taxes (Note 12)
    
    
    134,789
    
    
    
    2,153
    
    
    
    136,302
    
    
    
    5,653Net income (loss)
    
    $
    146,926
    
    
    $
    346
    
    
    $
    129,017
    
    
    $
    (63,451
    )Basic net income (loss) per common shareContinuing operations
    
    $
    0.16
    
    
    $
    (0.02
    )
    
    $
    (0.10
    )
    
    $
    (0.92
    )Discontinued operations
    
    
    1.81
    
    
    
    0.03
    
    
    
    1.83
    
    
    
    0.08Net income (loss)
    
    $
    1.97
    
    
    $
    0.00
    
    
    $
    1.73
    
    
    $
    (0.85
    )Diluted net income (loss) per common shareContinuing operations
    
    $
    0.16
    
    
    $
    (0.02
    )
    
    $
    (0.10
    )
    
    $
    (0.92
    )Discontinued operations
    
    
    1.81
    
    
    
    0.03
    
    
    
    1.83
    
    
    
    0.08Net income (loss)
    
    $
    1.97
    
    
    $
    0.00
    
    
    $
    1.73
    
    
    $
    (0.85
    )Weighted average number of common shares outstanding (thousands)Basic
    
    
    74,620
    
    
    
    74,618
    
    
    
    74,620
    
    
    
    75,003Diluted
    
    
    74,620
    
    
    
    74,618
    
    
    
    74,620
    
    
    
    75,003
 2




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##### 



QLT Inc.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)
 Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,(In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2008
    
    2007Cash used in operating activitiesNet income (loss)
    
    $
    146,926
    
    
    $
    346
    
    
    $
    129,017
    
    
    $
    (63,451
    )Adjustments to reconcile net loss to net cash
from operating activitiesDepreciation
    
    
    464
    
    
    
    1,697
    
    
    
    2,566
    
    
    
    4,927Write down of inventory
    
    
    
    
    
    
    
    
    
    
    7,066
    
    
    
    Write down of fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355Share based compensation
    
    
    789
    
    
    
    939
    
    
    
    2,830
    
    
    
    2,560Amortization of deferred financing expenses
    
    
    166
    
    
    
    330
    
    
    
    851
    
    
    
    938Unrealized foreign exchange loss
    
    
    511
    
    
    
    (7,162
    )
    
    
    4,431
    
    
    
    (14,539
    )Interest earned on restricted cash
    
    
    (675
    )
    
    
    (1,010
    )
    
    
    (2,763
    )
    
    
    (1,036
    )Deferred income taxes
    
    
    6,285
    
    
    
    2,522
    
    
    
    11,038
    
    
    
    (30,133
    )Gain on sale of long-lived assets
    
    
    (21,289
    )
    
    
    (2,990
    )
    
    
    (21,289
    )
    
    
    (3,990
    )Gain on sale of Atrigel discontinued operations
    
    
    (16,775
    )
    
    
    
    
    
    
    (16,775
    )
    
    
    Gain on sale of Aczone discontinued operations
    
    
    (117,489
    )
    
    
    
    
    
    
    (117,489
    )
    
    
    Trading securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,433Impairment of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    1,691
    
    
    
    Litigation
    
    
    
    
    
    
    265
    
    
    
    
    
    
    
    110,162Accrued cost of sales and interest re: MEEI
    
    
    2,536
    
    
    
    1,461
    
    
    
    7,644
    
    
    
    1,461Changes in non-cash operating assets and liabilitiesAppeal bond collateral
    
    
    
    
    
    
    (118,781
    )
    
    
    
    
    
    
    (118,781
    )Accounts receivable
    
    
    533
    
    
    
    5,382
    
    
    
    (5,102
    )
    
    
    15,945Inventories
    
    
    (3,729
    )
    
    
    1,225
    
    
    
    (5,369
    )
    
    
    (53
    )Long term deposits
    
    
    (1,684
    )
    
    
    
    
    
    
    (1,684
    )
    
    
    Other current assets
    
    
    3,966
    
    
    
    3,613
    
    
    
    1,951
    
    
    
    758Accounts payable
    
    
    331
    
    
    
    (2,175
    )
    
    
    819
    
    
    
    (4,773
    )Income taxes receivable / payable
    
    
    (12,367
    )
    
    
    (2,583
    )
    
    
    (19,429
    )
    
    
    (2,512
    )Accrued restructuring charge
    
    
    (349
    )
    
    
    (562
    )
    
    
    997
    
    
    
    (2,157
    )Other accrued liabilities
    
    
    (781
    )
    
    
    (1,546
    )
    
    
    1,044
    
    
    
    (119,229
    )Deferred revenue
    
    
    (1,633
    )
    
    
    (627
    )
    
    
    (1,633
    )
    
    
    693(14,264
    )
    
    
    (119,656
    )
    
    
    (19,588
    )
    
    
    (170,422
    )Cash provided by investing activitiesShort-term investment securities
    
    
    
    
    
    
    6,068
    
    
    
    
    
    
    
    22,503Net proceeds from sale of long-lived assets, net of mortgage
    
    
    49,390
    
    
    
    
    
    
    
    49,390
    
    
    
    Net proceeds from sale of Atrigel
    
    
    23,841
    
    
    
    
    
    
    
    23,841
    
    
    
    Net proceeds from sale of Aczone
    
    
    146,696
    
    
    
    
    
    
    
    146,696
    
    
    
    Restricted cash
    
    
    
    
    
    
    
    
    
    
    2,307
    
    
    
    1,689Proceeds on disposal of property, plant and equipment
    
    
    
    
    
    
    3,000
    
    
    
    86
    
    
    
    4,000Purchase of property, plant and equipment
    
    
    (179
    )
    
    
    (322
    )
    
    
    (398
    )
    
    
    (1,901
    )Other acquisition related costs
    
    
    (20
    )
    
    
    (509
    )
    
    
    (62
    )
    
    
    (524
    )219,728
    
    
    
    8,237
    
    
    
    221,860
    
    
    
    25,767Cash (used in) provided by financing activitiesRedemption of convertible debt
    
    
    (172,500
    )
    
    
    
    
    
    
    (172,500
    )
    
    
    Common shares repurchased
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (5,878
    )Issuance of common shares
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    1,258(172,500
    )
    
    
    3
    
    
    
    (172,500
    )
    
    
    (4,620
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    2,091
    
    
    
    6,828
    
    
    
    (558
    )
    
    
    22,397Net increase (decrease) in cash and cash equivalents
    
    
    35,055
    
    
    
    (104,588
    )
    
    
    29,214
    
    
    
    (126,878
    )Cash and cash equivalents, beginning of period
    
    
    120,890
    
    
    
    276,763
    
    
    
    126,731
    
    
    
    299,053Cash and cash equivalents, end of period
    
    $
    155,945
    
    
    $
    172,175
    
    
    $
    155,945
    
    
    $
    172,175Supplementary cash flow information:Interest paid
    
    $
    2,882
    
    
    $
    2,775
    
    
    $
    5,501
    
    
    $
    5,663Income taxes paid
    
    
    16,901
    
    
    
    148
    
    
    
    16,925
    
    
    
    148
 Non-cash
investing activity:
  1.
    
    On August 29, 2008, in connection with the sale of our land
and building, we provided a two year, 6.5% interest-only, second
mortgage vendor financing in the amount of CAD$12.0 million.
  3




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##### 



QLT Inc.  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY  (Unaudited)
 AccumulatedCommon Shares
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    
    
    
    TotalPaid-in
    
    Comprehensive Income
    
    
    
    
    
    Comprehensive
    
    ShareholdersShares
    
    Amount
    
    Capital
    
    (Loss)
    
    Accumulated Deficit
    
    Income (Loss)
    
    Equity(All amounts except share and per share information are expressed in thousands of U.S. dollars)Balance at December 31,
2006
    
    
    75,188,980
    
    
    $
    708,206
    
    
    $
    114,724
    
    
    $
    83,535
    
    
    $
    (603,251
    )
    
    
    
    
    
    $
    303,214Adjustment for the
adoption of FASB
Interpretation No. 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,207
    )
    
    
    
    
    
    
    (1,207
    )Exercise of stock
options at prices
ranging from CAD $7.79
to CAD $9.84 per share
and U.S. $2.89  U.S.
$9.29 per share
    
    
    181,348
    
    
    
    2,597
    
    
    
    (1,344
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,253Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,696Common share repurchase
    
    
    (750,000
    )
    
    
    (8,582
    )
    
    
    2,703
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,879
    )Other comprehensive loss:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,728
    
    
    
    
    
    
    $
    28,728
    
    
    
    28,728Unrealized gain on
available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    15Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109,997
    )
    
    
    (109,997
    )
    
    
    (109,997
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81,254
    )
    
    
    Balance at December 31,
2007
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    119,779
    
    
    $
    112,278
    
    
    $
    (714,455
    )
    
    
    
    
    
    $
    219,823Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,355Other comprehensive loss:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,268
    )
    
    
    
    
    
    $
    (2,268
    )
    
    
    (2,268
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,471
    )
    
    
    (10,471
    )
    
    
    (10,471
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,739
    )
    
    
    Balance at March 31, 2008
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    121,134
    
    
    $
    110,010
    
    
    $
    (724,926
    )
    
    
    
    
    
    $
    208,439Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    755Other comprehensive loss:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    $
    392
    
    
    
    392Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,438
    )
    
    
    (7,438
    )
    
    
    (7,438
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,046
    )
    
    
    Balance at June 30, 2008
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    121,889
    
    
    $
    110,402
    
    
    $
    (732,364
    )
    
    
    
    
    
    $
    202,148Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    787Other comprehensive loss:Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,594
    )
    
    
    
    
    
    $
    (2,594
    )
    
    
    (2,594
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,926
    
    
    
    146,926
    
    
    
    146,926Comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144,332
    
    
    
    Balance at September 30,
2008
    
    
    74,620,328
    
    
    $
    702,221
    
    
    $
    122,676
    
    
    $
    107,808
    (1)
    
    $
    (585,438
    )
    
    
    
    
    
    $
    347,267
 
 (1)
    
    At September 30, 2008 our accumulated other comprehensive income is entirely related to
cumulative translation adjustments from the application of U.S. dollar reporting.  4




---



##### 



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Business
  Basis of Presentation
    Principles of Consolidation
  Use of Estimates
  5




---



##### 



Reporting Currency and Foreign Currency Translation
  Segmented Information
  Inventories
  Long-lived Assets
  Accounting for the Impairment or Disposal of Long-lived
Assets.
 Goodwill Impairment
 Goodwill and Other
Intangibles
 Revenue Recognition
 Net Product Revenues
  6




---



##### 



Net Royalties
   Assets Held for Sale and Discontinued Operations
  Accounting for the Impairment or Disposal of
Long-Lived Assets
 Change in Depreciation Method
 Accounting Changes and
Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3
 7




---



##### 



Income Taxes
  Contingencies
  Net Income Per Common Share
   8




---



##### 



Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,(In thousands of U.S. dollars, except
share and per share data)
    
    2008
    
    2007
    
    2008
    
    2007Numerator:Income (loss) from continuing operations
    
    $
    12,137
    
    
    $
    (1,807
    )
    
    $
    (7,285
    )
    
    $
    (69,104
    )Income from discontinued operations, net
of income taxes
    
    
    134,789
    
    
    
    2,153
    
    
    
    136,302
    
    
    
    5,653Net income (loss)
    
    $
    146,926
    
    
    $
    346
    
    
    $
    129,017
    
    
    $
    (63,451
    )Effect of dilutive securities:Convertible senior notes  interest
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted income (loss)
    
    $
    146,926
    
    
    $
    346
    
    
    $
    129,017
    
    
    $
    (63,451
    )Denominator: (In thousands)Weighted average common shares outstanding
    
    
    74,620
    
    
    
    74,618
    
    
    
    74,620
    
    
    
    75,003Effect of dilutive securities:Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted potential common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average common shares
outstanding
    
    
    74,620
    
    
    
    74,618
    
    
    
    74,620
    
    
    
    75,003Basic net income (loss) per common shareContinuing operations
    
    $
    0.16
    
    
    $
    (0.02
    )
    
    $
    (0.10
    )
    
    $
    (0.92
    )Discontinued operations
    
    
    1.81
    
    
    
    0.03
    
    
    
    1.83
    
    
    
    0.08Net income (loss)
    
    $
    1.97
    
    
    $
    0.00
    
    
    $
    1.73
    
    
    $
    (0.85
    )Diluted net income (loss) per common shareContinuing operations
    
    $
    0.16
    
    
    $
    (0.02
    )
    
    $
    (0.10
    )
    
    $
    (0.92
    )Discontinued operations
    
    
    1.81
    
    
    
    0.03
    
    
    
    1.83
    
    
    
    0.08Net income (loss)
    
    $
    1.97
    
    
    $
    0.00
    
    
    $
    1.73
    
    
    $
    (0.85
    )
  Fair Value of Financial Assets and Liabilities
  Recently Issued Accounting Standards
 Fair Value Measurements Effective Date of FASB Statement No. 157,
 9




---



##### 



The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115
 Accounting for Collaborative
Arrangement Related to the Development and Commercialization of Intellectual Property.
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements  an amendment of Accounting Research Bulletin No. 51
 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
 10




---



##### 



2. INVENTORIES
 (In thousands of U.S. dollars)
    
    September 30, 2008
    
    December 31, 2007Raw materials and supplies
    
    $
    6,297
    
    
    $
    12,653Work-in-process
    
    
    32,643
    
    
    
    33,819Finished goods
    
    
    2,161
    
    
    
    67Provision for excess inventory
    
    
    (2,833
    )
    
    
    (3,020
    )Provision for non-completion of product inventory
    
    
    (3,994
    )
    
    
    (4,613
    )$
    34,274
    
    
    $
    38,906Less: Long-term inventory, net of provisions
    
    
    (21,841
    )
    
    
    (20,395
    )$
    12,433
    
    
    $
    18,511
   3. OTHER CURRENT ASSETS
 (In thousands of U.S. dollars)
    
    September 30, 2008
    
    December 31, 2007Inventory in transit held by Novartis
    
    $
    5,984
    
    
    $
    7,995Foreign exchange contracts
    
    
    
    
    
    
    1,236Deferred financing expenses
    
    
    
    
    
    
    863Prepaid expenses and other
    
    
    2,483
    
    
    
    1,836$
    8,467
    
    
    $
    11,930
  4. LONG-TERM INVENTORIES AND OTHER ASSETS
 (In thousands of U.S. dollars)
    
    September 30, 2008
    
    December 31, 2007Inventory, net of provisions
    
    $
    21,841
    
    
    $
    20,395Other
    
    
    1,799
    
    
    
    161$
    23,640
    
    
    $
    20,556
 11




---



##### 



5. GOODWILL
  (In thousands of U.S. dollars)
    
    GoodwillCost
    
    $
    409,586Impairment losses
    
    
    (305,628
    )Allocation to cost of dispositions  discontinued operations
(related to sale of generic dermatology and dental businesses
and related manufacturing facility in 2006)
    
    
    (5,317
    )Reduction in valuation allowance against deferred tax assets*
    
    
    (3,738
    )Balance as of December 31, 2007
    
    $
    94,903Reduction in valuation allowance against deferred tax assets*
    
    
    (1,149
    )Balance as of March 31, 2008
    
    $
    93,754Balance as of June 30, 2008
    
    $
    93,754Reduction in valuation allowance against deferred tax assets*
    
    
    (38,205
    )Allocation to cost of dispositions  discontinued operations
(sale of Aczone, out-license of certain Atrigel rights, and
sale of related equipment)
    
    
    (32,404
    )Balance as of September 30, 2008
    
    $
    23,145
  *
    
    We reduced our valuation allowance relating to various tax assets (including tax loss
carryforwards and research and development credit carryforwards) that were acquired upon the
acquisition of Atrix Laboratories, Inc. in 2004. (See Note 16  Income Taxes.) 6. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    September 30, 2008
    
    December 31, 2007Royalties
    
    $
    734
    
    
    $
    1,033Compensation
    
    
    3,083
    
    
    
    5,263Interest
    
    
    70
    
    
    
    1,560Litigation charge  MEEI judgment and
ongoing related accruals (Note 15)
    
    
    122,676
    
    
    
    115,027Provision for Eligard sales pricing rebate
    
    
    4,585
    
    
    
    Other
    
    
    361
    
    
    
    411$
    131,509
    
    
    $
    123,294
 12




---



##### 



7. CONVERTIBLE DEBT
  8. FOREIGN EXCHANGE FACILITIES
   9. RESTRUCTURING CHARGE
   Employee
    
    
    
    
    
    ContractTermination
    
    Asset
    
    Termination(In thousands of U. S. dollars)
    
    costs(1)
    
    Write-downs
    
    costs
    
    TotalBalance at December 31, 2007(2)
    
    $
    153
    
    
    $
    
    
    
    $
    
    
    
    $
    153Restructuring charge
    
    
    5,948
    
    
    
    1,486
    
    
    
    
    
    
    
    7,434Foreign exchange
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    (24
    )Cash payments
    
    
    (4,240
    )
    
    
    
    
    
    
    
    
    
    
    (4,240
    )Non-cash portion(3)
    
    
    (537
    )
    
    
    (1,486
    )
    
    
    
    
    
    
    (2,023
    )Balance at March 31, 2008
    
    $
    1,300
    
    
    $
    
    
    
    $
    
    
    
    $
    1,300Restructuring charge
    
    
    1,603
    
    
    
    53
    
    
    
    
    
    
    
    1,656Restructuring charge in discontinued
operations
    
    
    216
    
    
    
    
    
    
    
    
    
    
    
    216Foreign exchange
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Cash payments
    
    
    (1,663
    )
    
    
    
    
    
    
    
    
    
    
    (1,663
    )Non-cash portion(3)
    
    
    17
    
    
    
    (53
    )
    
    
    
    
    
    
    (36
    )Balance at June 30, 2008
    
    $
    1,479
    
    
    $
    
    
    
    $
    
    
    
    $
    1,479Restructuring charge
    
    
    51
    
    
    
    
    
    
    
    298
    
    
    
    349Restructuring charge in discontinued
operations
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Foreign exchange
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (36
    )Cash payments
    
    
    (646
    )
    
    
    
    
    
    
    
    
    
    
    (646
    )Non-cash portion(3)
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    (72
    )Balance at September 30, 2008
    
    $
    800
    
    
    $
    
    
    
    $
    298
    
    
    $
    1,098
 
 (1)
    
    Costs include severance, termination benefits, and outplacement support.(2)
    
    Opening balance represents remaining balance from previous restructurings.(3)
    
    Non-cash portion of employee termination costs relates to stock-based compensation. 13




---



##### 



10. SHARE CAPITAL
     Three months ended
    
    Nine months endedSeptember 30, 2008
    
    September 30, 2007
    
    September 30, 2008
    
    September 30, 2007Annualized volatility
    
    
    42.1
    %
    
    
    36.7
    %
    
    
    42.1
    %
    
    
    37.0
    %Risk-free interest rate
    
    
    2.9
    %
    
    
    4.0
    %
    
    
    2.9
    %
    
    
    4.4
    %Expected life (years)
    
    
    3.9
    
    
    
    3.3
    
    
    
    3.9
    
    
    
    3.3
   (In thousands of U.S. dollar)
    
    Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Cost of sales
    
    $
    2
    
    
    $
    17
    
    
    $
    13
    
    
    $
    21Research and development
    
    
    227
    
    
    
    533
    
    
    
    803
    
    
    
    1,602Selling, general and administrative
    
    
    492
    
    
    
    349
    
    
    
    1,300
    
    
    
    897Restructuring charge
    
    
    12
    
    
    
    40
    
    
    
    532
    
    
    
    40Discontinued operations
    
    
    56
    
    
    
    
    
    
    
    182
    
    
    
    Stock-based compensation expense
before income taxes
    
    
    789
    
    
    
    939
    
    
    
    2,830
    
    
    
    2,560Related income tax benefits
    
    
    (21
    )
    
    
    (30
    )
    
    
    (69
    )
    
    
    (110
    )Stock-based compensation, net of
income taxes
    
    $
    768
    
    
    $
    909
    
    
    $
    2,761
    
    
    $
    2,450
  14




---



##### 



11. NET PRODUCT REVENUE
  For the three months
    
    For the nine months endedended September 30,
    
    September 30,(In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2008
    
    2007Visudyne® sales by Novartis
    
    $
    34,081
    
    
    $
    48,735
    
    
    $
    111,237
    
    
    $
    169,315Less: Marketing and distribution
costs
    
    
    (15,606
    )
    
    
    (26,419
    )
    
    
    (51,538
    )
    
    
    (79,701
    )Less: Inventory costs
    
    
    (2,322
    )
    
    
    (2,909
    )
    
    
    (7,384
    )
    
    
    (8,863
    )Less: Royalties to third parties
    
    
    (733
    )
    
    
    (1,037
    )
    
    
    (2,381
    )
    
    
    (3,576
    )$
    15,420
    
    
    $
    18,370
    
    
    $
    49,934
    
    
    $
    77,175QLTs 50% share of Novartis net
proceeds from Visudyne® sales
    
    $
    7,710
    
    
    $
    9,185
    
    
    $
    24,967
    
    
    $
    38,587Add: Advance on inventory costs from
Novartis
    
    
    1,266
    
    
    
    2,198
    
    
    
    5,018
    
    
    
    6,372Add: Royalties reimbursed to QLT
    
    
    750
    
    
    
    991
    
    
    
    2,425
    
    
    
    3,533Add: Other costs reimbursed to QLT
    
    
    1,142
    
    
    
    2,232
    
    
    
    4,052
    
    
    
    5,678Revenue from Visudyne® sales
    
    $
    10,868
    
    
    $
    14,606
    
    
    $
    36,462
    
    
    $
    54,170
   12. DISCONTINUED OPERATIONS
  ® ®
 ®
 15




---



##### 



,
   Accounting for Leases Accounting for Sales of
Real Estate
  (In thousands of U.S. dollars)
    
    September 30, 2008
    
    December 31, 2007Building
    
    $
    
    
    
    $
    29,735Land
    
    
    
    
    
    
    7,187Equipment
    
    
    48
    
    
    
    5,810$
    48
    
    
    $
    42,732
  For the three months ended
    
    For the nine months endedSeptember 30,
    
    September 30,(In thousands of U.S. dollars)
    
    2008
    
    2007
    
    2008
    
    2007Net revenue
    
    $
    16,948
    
    
    $
    14,052
    
    
    $
    48,669
    
    
    $
    42,849Operating pre-tax income
    
    
    7,739
    
    
    
    3,645
    
    
    
    9,958
    
    
    
    9,472Gain on sale of discontinued operations
    
    
    134,264
    
    
    
    
    
    
    
    134,264
    
    
    
    Pre-tax income
    
    
    142,003
    
    
    
    3,645
    
    
    
    144,222
    
    
    
    9,472Income tax provision*
    
    
    (65,673
    )
    
    
    (1,492
    )
    
    
    (66,379
    )
    
    
    (3,819
    )Income tax recovery**
    
    
    58,459
    
    
    
    
    
    
    
    58,459
    
    
    
    Net income from discontinued operations
    
    $
    134,789
    
    
    $
    2,153
    
    
    $
    136,302
    
    
    $
    5,653
 16




---



##### 



*
    
    Income tax provision relating to the gain on sale of Aczone discontinued operations (before
application of loss carryforwards) was $55.2 million. Income tax provision relating to the gain on
sale of Atrigel discontinued operations (before application of loss carryforwards) was $8.1
million.**
    
    During the three and nine months ended September 30, 2008, we released our valuation allowance
on substantially all of QLT USAs tax assets. (See Note 16  Income Taxes.)  13. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
       Fair Value Measurements at September 30, 2008Carrying ValueSeptember 30, 2008
    
    Level 1
    
    Level 2
    
    Level 3Assets:Cash and cash equivalents
    
    $
    155,945
    
    
    $
    141,637
    
    
    $
    14,308
    
    
    $
    Restricted cash
    
    
    123,964
    
    
    
    123,964
    
    
    
    
    
    
    
    Mortgage receivable
    
    
    11,276
    
    
    
    
    
    
    
    11,276
    
    
    
    Total
    
    $
    291,191
    
    
    $
    265,601
    
    
    $
    25,584
    
    
    $
    Liabilities:Forward currency contracts
    
    $
    140
    
    
    $
    
    
    
    $
    140
    
    
    $
    
  17




---



##### 



.
 Maturity Period
    
    Quantity (millions)
    
    PriceCanadian / U.S. dollar
forward contract to buy USD
    
    
    2009
    
    
    USD 28.0
    
    1.0661 per USD
   14. COMMITMENTS AND GUARANTEES
  (In thousands of U.S. dollars)
 Year ending December 31,2008
    
    
    3692009
    
    
    1,4772010
    
    
    1,4772011
    
    
    1,4772012
    
    
    1,4772013
    
    
    985
  15. CONTINGENCIES
   (a) Eligard Patent Litigation
  18




---



##### 



(b) Patent Litigation with MEEI; MGH Matters
 ®
     19




---



##### 



(c) Litigation with Biolitec, Inc.
   20




---



##### 



16. INCOME TAXES
   21




---



##### 



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
     
    
    the sale of QLT USA, Inc. (QLT USA), our wholly-owned U.S. subsidiary, or its assets,
which at the time included: the Eligard product line for prostate cancer, the Atrigel drug
delivery system and Aczone (a dermatology product for the treatment of acne vulgaris);
    
    the sale of the land and building associated with and surrounding our corporate head office
in Vancouver; and
    
    the reduction in headcount of approximately 115 employees with planned reductions in the
future as assets are divested.
    22




---



##### 



RECENT DEVELOPMENTS
    RESULTS OF OPERATIONS
  23




---



##### 



Revenues
 Net Product Revenue
  For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,(In thousands of U.S. dollars)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Visudyne® sales by Novartis
    
    $
    34,081
    
    
    $
    48,735
    
    
    $
    111,237
    
    
    $
    169,315Less: Marketing and distribution
costs(1)
    
    
    (15,606
    )
    
    
    (26,419
    )
    
    
    (51,538
    )
    
    
    (79,701
    )Less: Inventory costs(2)
    
    
    (2,322
    )
    
    
    (2,909
    )
    
    
    (7,384
    )
    
    
    (8,863
    )Less: Royalties to third parties(3)
    
    
    (733
    )
    
    
    (1,037
    )
    
    
    (2,381
    )
    
    
    (3,576
    )$
    15,420
    
    
    $
    18,370
    
    
    $
    49,934
    
    
    $
    77,175QLTs 50% share of Novartis net proceeds from
Visudyne® sales
    
    $
    7,710
    
    
    $
    9,185
    
    
    $
    24,967
    
    
    $
    38,587Add: Advance on inventory costs from
Novartis(4)
    
    
    1,266
    
    
    
    2,198
    
    
    
    5,018
    
    
    
    6,372Add: Royalties reimbursed to QLT(5)
    
    
    750
    
    
    
    991
    
    
    
    2,425
    
    
    
    3,533Add: Other costs reimbursed to QLT(6)
    
    
    1,142
    
    
    
    2,232
    
    
    
    4,052
    
    
    
    5,678Revenue from Visudyne® sales
    
    $
    10,868
    
    
    $
    14,606
    
    
    $
    36,462
    
    
    $
    54,170
 (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, 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.
 24




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##### 



(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.
   Costs and Expenses
 Cost of Sales
  Accrued Cost of Sales re: MEEI
  Research and Development
   25




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##### 




    
    inability to design punctal plugs to function as expected,
    
    delays or inability to formulate active ingredient in right concentration to deliver
effective doses of drug,
    
    changes in the regulatory environment,
    
    introduction of competing technologies and treatments,
    
    unexpected safety issues,
    
    patent application, maintenance and enforcement issues,
    
    changes in the commercial marketplace,
    
    difficulties in enrolling patients,
    
    delays in study progression, including regulatory delays,
    
    inability to develop cost effective manufacturing methods that comply with regulatory
standards,
    
    inability to attract 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 discussed under Item 1A, Risk Factors.
  For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,(In thousands of U.S. dollars)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Ocular
    
    $
    6,255
    
    
    $
    6,608
    
    
    $
    20,057
    
    
    $
    18,344Dermatology
    
    
    581
    
    
    
    2,440
    
    
    
    2,821
    
    
    
    7,189Other
    
    
    51
    
    
    
    33
    
    
    
    171
    
    
    
    703$
    6,887
    
    
    $
    9,081
    
    
    $
    23,049
    
    
    $
    26,236
 Selling, General and Administrative Expenses
  Litigation
  Gain on Sale of Long-Lived Asset
  Restructuring Charge
  26




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##### 



Investment and Other Income (Expense)
 Net Foreign Exchange Losses
   For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands of U.S. dollars)Cash and cash equivalents and short-term
investments
    
    $
    8,159
    
    
    $
    (18,622
    )
    
    $
    12,936
    
    
    $
    (33,385
    )U.S. dollar long-term debt
    
    
    (7,623
    )
    
    
    12,072
    
    
    
    (11,559
    )
    
    
    27,757Foreign exchange contracts
    
    
    3,446
    
    
    
    (76
    )
    
    
    5,275
    
    
    
    1,913Foreign currency receivables and payables
    
    
    (4,278
    )
    
    
    5,763
    
    
    
    (6,710
    )
    
    
    2,430Net foreign exchange losses
    
    $
    (296
    )
    
    $
    (863
    )
    
    $
    (58
    )
    
    $
    (1,285
    )
 Interest Income
  Interest Expense
   Income from Discontinued Operations
 27




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##### 



® ®
 ®
  LIQUIDITY AND CAPITAL RESOURCES
    
    
    A positive cash flow variance from the deposit of cash of $118.8 million as security for
the appeal bond in 2007;
    
    A positive cash flow variance from lower operating and inventory related expenditures of
$10.4 million;
    
    A negative cash flow variance from lower cash receipts from product sales, royalties and
milestones of $6.8 million; and
    
    A negative cash flow variance from tax installments of $16.8 million.
 28




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##### 




    
    A positive cash flow variance from the deposit of cash of $118.8 million as security for
the appeal bond in 2007;
    
    A positive cash flow variance from the TAP litigation payment of $112.5 million in 2007;
    
    A positive cash flow variance from lower operating and inventory related expenditures of
$26.4 million;
    
    A negative cash flow variance from lower investment and other income of $2.3 million;
    
    A negative cash flow variance from higher restructuring costs of $3.2 million;
    
    A negative cash flow variance from tax installments of $16.8 million;
    
    A negative cash flow variance from lower cash receipts from product sales, royalties and
milestones of $32.5 million; and
    
    A negative cash flow variance from the sale of trading securities of $52.4 million in
2007.
   Interest and Foreign Exchange Rates
     29




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##### 



Maturity Period
    
    Quantity (millions)
    
    PriceCanadian / U.S. dollar
forward contract to buy USD
    
    
    2009
    
    
    USD 28.0
    
    1.0661 per USD
 Contractual Obligations
    Off-Balance Sheet Arrangements
   General
  30




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##### 



Global Market and Economic Conditions
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  31




---



##### 



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 expectations regarding European Visudyne label changes, reimbursement and sales;
    
    our ability to successfully develop our latanoprost punctal plug delivery system
(L-PPDS);
    
    anticipated future operating results;
    
    our expectations as to the outcome of the appeal of the judgment in the MEEI litigation
against us and the effect of an adverse judgment on the MGH license agreement;
    
    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 certain core and non-core
assets (including Eligard and related assets) at prices acceptable to us or at all;
    
    our expectations regarding the amount of annual operating savings we could derive as a
result of our corporate restructure;
    
    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.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 32




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##### 



33




---



##### 



ITEM 4. CONTROLS AND PROCEDURES
       34




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##### 



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  We derive a significant portion of our revenue from sales of Visudyne and Eligard. If our planned
sale of QLT USA and/or the Eligard product line is completed, Visudyne will be our primary source
of revenue. Accordingly, any decrease in sales of Visudyne would harm our business.
  
    
    failure of ongoing clinical trials,
    
    product manufacturing or supply interruptions,
    
    the development of competitive products by other companies,
    
    marketing or pricing actions by our competitors or regulatory authorities,
    
    changes in the reimbursement or substitution policies of third-party payors,
    
    changes in or withdrawal of regulatory approval for or the labeling of our products,
    
    the outcome of disputes relating to patents,
    
    disputes with our licensees, and
    
    changes in laws that adversely affect our ability to market our products.
 Our commercial success depends in part on the success of third parties to market our products.
   35




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##### 



Our revenues depend on payment and reimbursement from third party payers and pricing, and if third
party payers reduce or refuse payment, 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.
   ®
 If our supply of Visudyne or Eligard is interrupted, our ability to maintain our inventory levels
could suffer and our future revenues may be reduced.
  36




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##### 



Our success depends largely on the successful commercialization of our technology, and in
particular our drug/device combination punctal plug drug delivery technology.
  
    
    Future clinical trial results may show that some or all of our technology is not safe or
effective.
    
    Even if our technology is shown to be safe and effective, we and our strategic
collaborators may face significant or unforeseen difficulties in manufacturing our products.
These difficulties may become apparent when we or our strategic collaborators manufacture the
products on a small scale for clinical trials and regulatory approval or may only become
apparent when scaling-up the manufacturing to commercial scale.
    
    Even if our technology-based products are successfully developed, receive all necessary
regulatory approvals and are commercially produced, there is no guarantee that there will be
market acceptance of them or that they will not cause unanticipated side effects in patients.
   If our process related to product development, and in particular the development of our punctal
plug delivery technology, does not result in an approved and commercially successful product, our
business could be adversely affected.
   Our current and planned clinical trials may not begin on time, or at all, and may not be completed
on schedule, or at all.
 37




---



##### 




    
    the FDA or other regulatory authorities do not approve a clinical trial protocol or a
clinical trial, or place a clinical trial on hold;
    
    the data and safety monitoring committee of a clinical trial recommends that a trial be
placed on hold or suspended;
    
    patients do not enroll in clinical trials at the rate we expect;
    
    patients are not followed-up at the rate we expect;
    
    patients experience adverse side effects or events related to our products;
    
    patients die or suffer adverse medical effects during a clinical trial for a variety of
reasons, including the advanced stage of their disease or medical problems, which may or may
not be related to our product candidates;
    
    regulatory inspections of our clinical trials or manufacturing facilities, which may,
among other things, require us to undertake corrective action or suspend or terminate our
clinical trials if investigators find us not to be in compliance with regulatory
requirements;
    
    the failure of our manufacturing process to produce finished products which conform to
design and performance specifications;
    
    changes in governmental regulations or administrative actions;
    
    the interim results of  clinical trials are inconclusive or negative;
    
    pre-clinical or clinical data is interpreted by third parties in different ways;
    
    our clinical trial expenditures are constrained by our budgetary considerations; or
    
    our trial design, although approved, is inadequate for
demonstration of  safety and/or efficacy.
   Product development is a long, expensive and uncertain process, and we may terminate one or more of
our development programs.
  If there is an adverse outcome in our litigation or other legal actions, our business may be
harmed.
  38




---



##### 



We may not be able to negotiate the disposition of defined assets, including QLT USA or its assets
including Eligard, on terms acceptable to us or at all, and our Board of Directors may determine
during and as a result of the process that we should not continue with the present strategy.
  Even if we are able to negotiate and enter into definitive agreements for the disposition of
defined assets, including QLT USA or its assets including Eligard, we may not be able to consummate
the transactions contemplated by the definitive agreements.
  39




---



##### 



The process of pursuing multiple strategic transactions and initiatives simultaneously diverts the
attention of our management and employees, increases our professional services expenses and may
disrupt our operations.
   We are undertaking significant strategic and organizational changes. Failure to manage disruption
to our business or the loss of key personnel could have a material adverse effect on our business.
   We face intense competition, which may limit our commercial opportunities and our ability to
generate revenues.
   40




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##### 



If we do not achieve and sustain profitability, shareholders may lose their investment.
  If we do not successfully develop and launch replacements for our products that lose patent
protection, our revenues may decline and we may not be able to compete effectively.
  Our commercial success depends in part on our ability and the ability of our licensors to obtain
and maintain patent protection on technologies, to preserve trade secrets, and to operate without
infringing the proprietary rights of others.
     41




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##### 



The incidence of wet AMD might be reduced if therapies currently in development or currently
available prevent or reduce the risk of development of wet AMD which could adversely impact the
sales of Visudyne.
  We rely on third-party manufacturers, and difficulties with such third parties could delay future
revenues from our products sales.
      42




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##### 



If our contract manufacturers fail to comply with FDA and other foreign regulatory requirements or
with our product specifications, we may be unable to meet demand for our products and may lose
potential revenue and be subject to claims from our licensees.
    In the field of Photodynamic Therapy, or PDT, we are dependent on the success and continued supply
of third-party medical device companies with complementary light source and light delivery devices
by third party suppliers.
   Inherent uncertainties associated with forecasting product demand and future product launch and
other factors could result in our inventory becoming obsolete or reduced, possibly materially, in
market value.
  If the facilities storing our inventory are damaged or destroyed, our ability to meet market demand
for our products could be significantly affected.
 43




---



##### 



The future growth of our business may depend in part on our ability to successfully identify,
acquire on favorable terms, and assimilate technologies, products or businesses.
  
    
    difficulties in and costs associated with assimilating the operations, technologies,
personnel and products of an acquired business,
    
    assumption of known or unknown liabilities or other unanticipated events or
circumstances,
    
    the potential disruption to our ongoing business, and
    
    the potential negative impact on our earnings.
  We rely on our employees and consultants to keep our trade secrets confidential.
  Visudyne, Eligard or our other products may exhibit adverse side effects that prevent their
widespread use or that necessitate withdrawal from the market.
  If we fail to comply with ongoing regulatory requirements it will materially harm our business.
   44




---



##### 



Our use of hazardous materials exposes us to the risk of environmental liabilities, and we may
incur substantial additional costs to comply with environmental laws.
  45




---



##### 



Our provision for income taxes and effective income tax rate may vary significantly and may
adversely affect our results of operations and cash resources.
   We may need additional capital in the future, and our prospects for obtaining it are uncertain
  Our operating results may fluctuate, which may cause our financial results to be below expectations
and the market price of our securities to decline.
  
    
    lower than expected revenues from sales of Visudyne or Eligard,
    
    changes in pricing, pricing strategies or reimbursement levels for Visudyne or Eligard,
    
    seasonal fluctuations, particularly in the third quarter due to decreased demand for
Visudyne in the summer months,
    
    high levels of marketing expenses for Visudyne or the launch of additional competitors
to Visudyne or Eligard,
    
    fluctuations in currency exchange rates,
    
    unfavorable outcome of the German Eligard patent litigation commenced against QLT USAs
German licensees by Takeda Chemical Industries Ltd. and Takeda Pharma Gmbh,
 46




---



##### 




    
    unfavorable outcome in the appeal of the judgment of the District Court in the
litigation commenced by MEEI against us,
    
    higher than expected operating expenses as a result of increased costs associated with
the development or commercialization of Visudyne, Eligard, and our other products and
candidates,
    
    increased operating expenses as a result of product, technology or other acquisitions or
business combinations, and
    
    divestment of Eligard and other revenue producing assets.
  The market price of our common shares is extremely volatile and the value of your investment could
decline.
  
    
    announcements of technological innovations or new products by us or our competitors,
    
    developments or outcome of litigation, including litigation regarding proprietary and
patent rights,
    
    regulatory developments or delays concerning our products,
    
    quarterly variations in our financial results,
    
    business and product market cycles,
    
    fluctuations in customer requirements,
    
    the availability and utilization of manufacturing capacity and our ability to continue
to supply Visudyne, Eligard and our other products,
    
    the timing and amounts of royalties paid to us by third parties, and
    
    issues with the safety or effectiveness of our products.
  If we fail to manage our exposure to global financial and securities market risk successfully, our
operating results and financial statements could be materially impacted.
  47




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##### 



Various provisions of our charter may impede a change in control that is beneficial to our
shareholders.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 6. EXHIBITS
  48




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##### 



SIGNATURES
  QLT Inc.
(Registrant)Date: November 7, 2008
    By:
    /s/ Robert L. ButchofskyRobert L. ButchofskyPresident and  Chief Executive
Officer
(Principal Executive Officer)Date: November 7, 2008
    By:
    /s/ Cameron R. NelsonCameron R. NelsonVice President, Finance and Chief Financial
Officer
(Principal Financial and Accounting Officer) 49




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##### 



EXHIBIT INDEX
 Exhibit
    
    Description
    
    Location31.1
    
    Rule 13a-14 (a) Certification of the Chief Executive Officer.
    
    Filed herewith.31.2
    
    Rule 13a-14(a) Certification of the Chief Financial Officer.
    
    Filed herewith.32.1
    
    Section 1350 Certification of the Chief Executive Officer.
    
    Filed herewith.32.2
    
    Section 1350 Certification of the Chief Financial Officer.
    
    Filed herewith.
 50