##### 



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
   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
  Yes     þ
    
    No     o
  Large accelerated filer     þ
    
    Accelerated filer     o
    
    Non-accelerated filer     o
  Yes     o
    
    No     þ




---



##### 



QLT INC.
 QUARTERLY REPORT ON FORM 10-Q
June 30, 2007
 TABLE OF CONTENTS
 ITEM
    
    
    
    PAGEPART I  FINANCIAL INFORMATION1.
    
    FINANCIAL STATEMENTS
    
    
    1Unaudited Condensed Consolidated Balance Sheets as of
June 30, 2007 and December 31, 2006
    
    
    1Unaudited Condensed Consolidated Statements of Income for the three
and six months ended June 30, 2007 and June 30, 2006
    
    
    2Unaudited Condensed Consolidated Statements of Cash Flows for the three
and six months ended June 30, 2007 and June 30, 2006
    
    
    3Unaudited Condensed Consolidated Statement of Changes in Shareholders
Equity and Comprehensive Income for the three and six months
ended June 30, 2007
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    52.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    183.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    284.
    
    CONTROLS AND PROCEDURES
    
    
    28PART II  OTHER INFORMATION1.
    
    LEGAL PROCEEDINGS
    
    
    291A.
    
    RISK FACTORS
    
    
    292.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    404.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    406.
    
    EXHIBITS
    
    
    41




---



##### 



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS  QLT Inc.  CONDENSED CONSOLIDATED BALANCE SHEETS  (Unaudited)
 (In thousands of U.S. dollars)
    
    June 30, 2007
    
    
    December 31, 2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    276,763
    
    
    $
    299,053Short-term investment securities
    
    
    5,924
    
    
    
    75,163Restricted cash
    
    
    2,253
    
    
    
    3,916Accounts receivable
    
    
    29,353
    
    
    
    38,872Income taxes receivable
    
    
    4,304
    
    
    
    4,049Inventories (Note 3)
    
    
    38,099
    
    
    
    34,268Current portion of deferred income tax assets
    
    
    43,664
    
    
    
    8,657Other (Note 4)
    
    
    17,967
    
    
    
    14,031418,327
    
    
    
    478,009Property, plant and equipment
    
    
    52,587
    
    
    
    50,497Deferred income tax assets
    
    
    15,239
    
    
    
    9,838Goodwill
    
    
    96,089
    
    
    
    98,641Other long-term assets
    
    
    1,868
    
    
    
    2,121$
    584,110
    
    
    $
    639,106LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    10,945
    
    
    $
    15,255Income taxes payable
    
    
    60
    
    
    
    29Accrued restructuring charge (Note 7)
    
    
    841
    
    
    
    2,383Accrued liabilities (Note 5)
    
    
    118,374
    
    
    
    125,805Deferred revenue
    
    
    12,936
    
    
    
    11,508143,156
    
    
    
    154,980Deferred income tax liabilities
    
    
    8,757
    
    
    
    5,483Uncertain tax position liabilities (Note 2)
    
    
    1,886
    
    
    
    Deferred revenue
    
    
    3,673
    
    
    
    2,929Long-term debt
    
    
    172,500
    
    
    
    172,500329,972
    
    
    
    335,892CONTINGENCIES (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
    
    
    702,148
    
    
    
    708,206June 30, 2007  74,616,693 sharesDecember 31, 2006  75,188,980 sharesAdditional paid in-capital
    
    
    117,942
    
    
    
    114,724Accumulated deficit
    
    
    (668,253
    )
    
    
    (603,251
    )Accumulated other comprehensive income
    
    
    102,301
    
    
    
    83,535254,138
    
    
    
    303,214$
    584,110
    
    
    $
    639,106
 1




---



##### 



QLT Inc.  CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (Unaudited)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars except share and per share information)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesNet product revenue (Note 9)
    
    $
    27,881
    
    
    $
    41,414
    
    
    $
    52,997
    
    
    $
    88,219Net royalties
    
    
    7,360
    
    
    
    5,868
    
    
    
    14,414
    
    
    
    8,830Contract research and development
    
    
    50
    
    
    
    270
    
    
    
    299
    
    
    
    671Licensing and milestones
    
    
    367
    
    
    
    244
    
    
    
    652
    
    
    
    48835,658
    
    
    
    47,796
    
    
    
    68,362
    
    
    
    98,208Costs and expensesCost of sales
    
    
    12,242
    
    
    
    11,551
    
    
    
    20,961
    
    
    
    21,732Research and development
    
    
    11,075
    
    
    
    15,767
    
    
    
    22,158
    
    
    
    30,140Selling, general and administrative
    
    
    5,560
    
    
    
    9,756
    
    
    
    12,402
    
    
    
    17,574Depreciation
    
    
    1,579
    
    
    
    1,593
    
    
    
    3,163
    
    
    
    3,105Litigation (Note 12)
    
    
    109,897
    
    
    
    
    
    
    
    109,897
    
    
    
    Restructuring charge (recovery) (Note 7)
    
    
    283
    
    
    
    (246
    )
    
    
    858
    
    
    
    (194
    )140,636
    
    
    
    38,421
    
    
    
    169,439
    
    
    
    72,357Operating (loss) income
    
    
    (104,978
    )
    
    
    9,375
    
    
    
    (101,077
    )
    
    
    25,851Investment and other income (expense)Net foreign exchange gains (losses)
    
    
    (448
    )
    
    
    (2,105
    )
    
    
    (423
    )
    
    
    (3,467
    )Interest income
    
    
    3,442
    
    
    
    5,218
    
    
    
    7,346
    
    
    
    9,835Interest expense
    
    
    (1,648
    )
    
    
    (1,624
    )
    
    
    (3,230
    )
    
    
    (3,218
    )Other
    
    
    112
    
    
    
    1,792
    
    
    
    1,264
    
    
    
    1,7921,458
    
    
    
    3,281
    
    
    
    4,957
    
    
    
    4,942(Loss) income from continuing operations before income taxes
    
    
    (103,520
    )
    
    
    12,656
    
    
    
    (96,120
    )
    
    
    30,793Recovery (provision) for income taxes
    
    
    35,024
    
    
    
    (4,416
    )
    
    
    32,490
    
    
    
    (9,899
    )(Loss) income from continuing operations
    
    
    (68,496
    )
    
    
    8,240
    
    
    
    (63,630
    )
    
    
    20,894Loss from discontinued operations, net of income taxes (Note 10)
    
    
    (171
    )
    
    
    (756
    )
    
    
    (171
    )
    
    
    (1,278
    )Net (loss) income
    
    $
    (68,667
    )
    
    $
    7,484
    
    
    $
    (63,801
    )
    
    $
    19,616Basic net (loss) income per common shareContinuing operations
    
    $
    (0.91
    )
    
    $
    0.09
    
    
    $
    (0.85
    )
    
    $
    0.23Discontinued operations
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.01
    )Net (loss) income
    
    $
    (0.92
    )
    
    $
    0.08
    
    
    $
    (0.85
    )
    
    $
    0.22Diluted net (loss) income per common shareContinuing operations
    
    $
    (0.91
    )
    
    $
    0.09
    
    
    $
    (0.85
    )
    
    $
    0.23Discontinued operations
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.01
    )Net (loss) income
    
    $
    (0.92
    )
    
    $
    0.08
    
    
    $
    (0.85
    )
    
    $
    0.22Weighted average number of common shares outstanding (thousands)Basic
    
    
    74,982
    
    
    
    88,752
    
    
    
    75,195
    
    
    
    89,686Diluted
    
    
    74,982
    
    
    
    88,796
    
    
    
    75,195
    
    
    
    89,726
 2




---



##### 



QLT Inc.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Cash flows provided by (used in) operating activitiesNet income
    
    $
    (68,667
    )
    
    $
    7,484
    
    
    $
    (63,801
    )
    
    $
    19,616Adjustments to reconcile net income to net cash
from operating activitiesAmortization of intangibles
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78Depreciation
    
    
    1,646
    
    
    
    1,753
    
    
    
    3,230
    
    
    
    3,670Write down of investments
    
    
    
    
    
    
    432
    
    
    
    
    
    
    
    432Write down of fixed assets
    
    
    355
    
    
    
    
    
    
    
    355
    
    
    
    Share based compensation
    
    
    732
    
    
    
    956
    
    
    
    1,621
    
    
    
    2,108Amortization of deferred financing expenses
    
    
    314
    
    
    
    308
    
    
    
    608
    
    
    
    607Unrealized foreign exchange (gain) loss
    
    
    (8,467
    )
    
    
    (5,170
    )
    
    
    (7,372
    )
    
    
    (9,633
    )Tax loss utilization
    
    
    1,136
    
    
    
    
    
    
    
    2,552
    
    
    
    Deferred income taxes (recovery)
    
    
    (35,300
    )
    
    
    (2,243
    )
    
    
    (35,207
    )
    
    
    (4,413
    )Loss on disposal of equipment
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Trading securities
    
    
    (5,924
    )
    
    
    
    
    
    
    52,433
    
    
    
    Litigation
    
    
    109,897
    
    
    
    
    
    
    
    109,897
    
    
    
    Interest
earned on restricted cash
    
    
    (26)
    
    
    
    
    
    
    
    (26)
    
    
    
    Changes in non-cash operating assets and liabilitiesAccounts receivable
    
    
    2,412
    
    
    
    7,922
    
    
    
    10,563
    
    
    
    4,255Inventories
    
    
    1,059
    
    
    
    4,338
    
    
    
    (1,278
    )
    
    
    7,650Other current assets
    
    
    (354
    )
    
    
    2,156
    
    
    
    (2,855
    )
    
    
    2,514Accounts payable
    
    
    (2,207
    )
    
    
    (4,476
    )
    
    
    (2,598
    )
    
    
    (5,484
    )Income taxes payable
    
    
    (952
    )
    
    
    (3,398
    )
    
    
    71
    
    
    
    (17,964
    )Accrued restructuring charge
    
    
    (534
    )
    
    
    (1,435
    )
    
    
    (1,595
    )
    
    
    (3,671
    )Other accrued liabilities
    
    
    1,407
    
    
    
    4,081
    
    
    
    (117,683
    )
    
    
    (4,449
    )Deferred revenue
    
    
    3,633
    
    
    
    2,521
    
    
    
    1,320
    
    
    
    545160
    
    
    
    15,249
    
    
    
    (49,765
    )
    
    
    (4,119
    )Cash (used in) provided by investing activitiesShort-term investment securities
    
    
    
    
    
    
    (25,954
    )
    
    
    16,435
    
    
    
    (75,514
    )Restricted cash
    
    
    
    
    
    
    (1,675
    )
    
    
    1,689
    
    
    
    (1,675
    )Purchase of property, plant and equipment
    
    
    (708
    )
    
    
    (2,039
    )
    
    
    (1,579
    )
    
    
    (3,595
    )Proceeds on disposal of property and equipment
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    13Other acquisition related costs
    
    
    (15
    )
    
    
    (12
    )
    
    
    (15
    )
    
    
    (14
    )(723
    )
    
    
    (29,667
    )
    
    
    16,530
    
    
    
    (80,785
    )Cash used in financing activitiesCommon shares repurchased
    
    
    (5,864
    )
    
    
    (10,597
    )
    
    
    (5,864
    )
    
    
    (23,559
    )Issuance of common shares
    
    
    320
    
    
    
    424
    
    
    
    1,239
    
    
    
    597(5,544
    )
    
    
    (10,173
    )
    
    
    (4,625
    )
    
    
    (22,962
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    15,284
    
    
    
    11,200
    
    
    
    15,570
    
    
    
    9,925Net decrease in cash and cash equivalents
    
    
    9,177
    
    
    
    (13,391
    )
    
    
    (22,290
    )
    
    
    (97,941
    )Cash and cash equivalents, beginning of period
    
    
    267,586
    
    
    
    261,249
    
    
    
    299,053
    
    
    
    345,799Cash and cash equivalents, end of period
    
    $
    276,763
    
    
    $
    247,858
    
    
    $
    276,763
    
    
    $
    247,858Supplementary cash flow information:Interest paid
    
    $
    135
    
    
    $
    82
    
    
    $
    2,888
    
    
    $
    2,874Income taxes paid
    
    
    
    
    
    
    10,057
    
    
    
    
    
    
    
    32,211
 3




---



##### 



QLT Inc.  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY  (Unaudited)
 AccumulatedCommon Shares
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TotalPaid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity(All amounts except share and per share information are expressed in thousands of U.S. dollars)Balance at December 31,
2005
    
    
    91,184,681
    
    
    $
    861,676
    
    
    $
    66,565
    
    
    $
    99,515
    
    
    $
    (501,645
    )
    
    
    
    
    
    $
    526,111Exercise of stock
options at prices
ranging from CAD $7.79
to CAD $9.22 per share
and U.S. $2.89 - U.S.
$8.64 per share
    
    
    127,299
    
    
    
    2,387
    
    
    
    (1,574
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    813Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,586
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,586Common share repurchase
    
    
    (16,123,000
    )
    
    
    (155,857
    )
    
    
    45,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110,710
    )Other comprehensive
income (loss):Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,187
    )
    
    
    
    
    
    $
    (16,187
    )
    
    
    (16,187
    )Unrealized gain on
available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    207
    
    
    
    207Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,605
    )
    
    
    (101,605
    )
    
    
    (101,605
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117,585
    )
    
    
    Balance at December 31,
2006
    
    
    75,188,980
    
    
    $
    708,206
    
    
    $
    114,724
    
    
    $
    83,535
    (1)
    
    $
    (603,251
    )
    
    
    
    
    
    $
    303,214Adjustment for the
adoption of FASB
Interpretation No. 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,199
    )
    
    
    
    
    
    
    (1,199
    )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
    
    
    125,417
    
    
    
    1,840
    
    
    
    (921
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    919Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    979
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    979Other comprehensive
income (loss):Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,013
    
    
    
    
    
    
    $
    2,013
    
    
    
    2,013Unrealized gain on
available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22
    
    
    
    22Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,863
    
    
    
    4,863
    
    
    
    4,863Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,898
    
    
    
    Balance at March 31, 2007
    
    
    75,314,397
    
    
    $
    710,046
    
    
    $
    114,782
    
    
    $
    85,570
    
    
    $
    (599,587
    )
    
    
    
    
    
    $
    310,811Exercise of stock
options at CAD $7.79 and
prices ranging from U.S.
$5.13 - U.S. $7.27 per
share
    
    
    52,296
    
    
    
    684
    
    
    
    (364
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    806
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    806Common share repurchase
    
    
    (750,000
    )
    
    
    (8,582
    )
    
    
    2,718
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,864
    )Other comprehensive
income (loss):Cumulative translation
adjustment from
application of U.S.
dollar reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,745
    
    
    
    
    
    
    $
    16,745
    
    
    
    16,745Unrealized gain on
available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    (14
    )
    
    
    (14
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,667
    )
    
    
    (68,667
    )
    
    
    (68,667
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51,936
    )
    
    
    Balance at June 30, 2007
    
    
    74,616,693
    
    
    
    702,148
    
    
    
    117,942
    
    
    
    102,301
    
    
    
    (668,253
    )
    
    
    
    
    
    
    254,138
 4




---



##### 



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. 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




---



##### 



Segmented Information
 Long-lived Assets
 Accounting
for the Impairment or Disposal of Long-lived Assets.
 Goodwill Impairment  Goodwill and Other
Intangibles
 Contingencies
  Discontinued Operations
 6




---



##### 



Revenue Recognition
 Net Product Revenues
     Net Royalties
  Contract Research and Development
  7




---



##### 



Licensing and Milestones
  Research and Development
 Stock-Based Compensation  Share-Based Payment, Accounting for Stock Issued to Employees. Accounting for Stock-Based Payment
  Income Taxes  Accounting
for Uncertainty in Income Taxes
 Net Income Per Common Share
 8




---



##### 



(In thousands of U.S. dollars, except share and per share data)
    
    Three months ended
    
    
    Six months endedJune 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Numerator:(Loss) Income from continuing operations
    
    $
    (68,496
    )
    
    $
    8,240
    
    
    $
    (63,630
    )
    
    $
    20,894Loss from discontinued operations, net of income taxes
    
    
    (171
    )
    
    
    (756
    )
    
    
    (171
    )
    
    
    (1,278
    )Net income
    
    $
    (68,667
    )
    
    $
    7,484
    
    
    $
    (63,801
    )
    
    $
    19,616Effect of dilutive securities:Convertible senior notes  interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted income
    
    $
    (68,667
    )
    
    $
    7,484
    
    
    $
    (63,801
    )
    
    $
    19,616Denominator: (thousands)Weighted average common shares outstanding
    
    
    74,982
    
    
    
    88,752
    
    
    
    75,195
    
    
    
    89,686Effect of dilutive securities:Stock options
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    40Convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted potential common shares
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    40Diluted weighted average common shares outstanding
    
    
    74,982
    
    
    
    88,796
    
    
    
    75,195
    
    
    
    89,726Basic net income per common shareContinuing operations
    
    $
    (0.91
    )
    
    $
    0.09
    
    
    $
    (0.85
    )
    
    $
    0.23Discontinued operations
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.01
    )Net income
    
    $
    (0.92
    )
    
    $
    0.08
    
    
    $
    (0.85
    )
    
    $
    0.22Diluted net income per common shareContinuing operations
    
    $
    (0.91
    )
    
    $
    0.09
    
    
    $
    (0.85
    )
    
    $
    0.23Discontinued operations
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.01
    )Net income
    
    $
    (0.92
    )
    
    $
    0.08
    
    
    $
    (0.85
    )
    
    $
    0.22
  Recently Issued Accounting Standards
 Accounting for Uncertainty in Income Taxes
 an Interpretation of FASB Statement No. 109
 Accounting for Certain Hybrid Financial Instruments
- an amendment of FASB statement 133 and 140
 Fair Value Measurements
 9




---



##### 



The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115
 ,
Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research
and Development Activities.
 2. INCOME TAXES
 Accounting for Uncertainty in Income Taxes
    3. INVENTORIES
 (In thousands of U.S. dollars)
    
    June 30, 2007
    
    
    December 31, 2006Raw materials and supplies
    
    $
    9,206
    
    
    $
    10,723Work-in-process
    
    
    33,953
    
    
    
    27,981Finished goods
    
    
    109
    
    
    
    676Provision for non-completion of product inventory
    
    
    (5,169
    )
    
    
    (5,112
    )$
    38,099
    
    
    $
    34,268
 10




---



##### 



4. OTHER CURRENT ASSETS
 (In thousands of U.S. dollars)
    
    June 30, 2007
    
    
    December 31, 2006Visudyne inventory held by Novartis Ophthalmics
    
    $
    14,333
    
    
    $
    10,677Prepaid expenses and other
    
    
    3,634
    
    
    
    3,354$
    17,967
    
    
    $
    14,031
  5. ACCRUED LIABILITIES
 (In thousands of U.S. dollars)
    
    June 30, 2007
    
    
    December 31, 2006Royalties
    
    $
    1,317
    
    
    $
    1,723Compensation
    
    
    3,553
    
    
    
    4,683Separation costs
    
    
    466
    
    
    
    1,107Foreign exchange contracts
    
    
    
    
    
    
    2,011Interest
    
    
    2,136
    
    
    
    1,936Litigation
    
    
    109,897
    
    
    
    Litigation settlement
    
    
    
    
    
    
    112,500Other
    
    
    1,005
    
    
    
    1,845$
    118,374
    
    
    $
    125,805
 6. FOREIGN EXCHANGE FACILITIES
   7. RESTRUCTURING CHARGE
  11




---



##### 



Severance and termination benefits accrued
 December 2005
    
    
    October 2006(In thousands of U. S. dollars)
    
    Restructuring
    
    
    Restructuring
    
    
    TotalBalance at December 31, 2006
    
    $
    686
    
    
    $
    1,514
    
    
    $
    2,200Restructuring charge
    
    
    
    
    
    
    407
    
    
    
    407Adjustments
    
    
    (68
    )
    
    
    
    
    
    
    (68
    )Cash payments
    
    
    (246
    )
    
    
    (1,080
    )
    
    
    (1,326
    )Balance at March 31, 2007
    
    $
    372
    
    
    $
    841
    
    
    $
    1,213Restructuring charge
    
    
    
    
    
    
    253
    
    
    
    253Adjustments
    
    
    20
    
    
    
    10
    
    
    
    30Cash payments
    
    
    (178
    )
    
    
    (558
    )
    
    
    (736
    )Balance at June 30, 2007
    
    
    214
    
    
    
    546
    
    
    
    760
 Other related expenses accrued
 December 2005
    
    
    October 2006(In thousands of U. S. dollars)
    
    Restructuring
    
    
    Restructuring
    
    
    TotalBalance at December 31, 2006
    
    $
    99
    
    
    $
    84
    
    
    $
    183Restructuring charge
    
    
    
    
    
    
    237
    
    
    
    237Cash payments
    
    
    (23
    )
    
    
    (285
    )
    
    
    (308
    )Balance at March 31, 2007
    
    $
    76
    
    
    $
    36
    
    
    $
    112Restructuring charge
    
    
    
    
    
    
    6
    
    
    
    6Adjustments
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Cash payments
    
    
    (13
    )
    
    
    (18
    )
    
    
    (31
    )Balance at June 30, 2007
    
    
    57
    
    
    
    24
    
    
    
    81
 Combined Total
 December 2005
    
    
    October 2006(In thousands of U. S. dollars)
    
    Restructuring
    
    
    Restructuring
    
    
    TotalBalance at December 31, 2006
    
    $
    785
    
    
    $
    1,598
    
    
    $
    2,383Restructuring charge
    
    
    
    
    
    
    644
    
    
    
    644Adjustments
    
    
    (68
    )
    
    
    
    
    
    
    (68
    )Cash payments
    
    
    (269
    )
    
    
    (1,365
    )
    
    
    (1,634
    )Balance at March 31, 2007
    
    $
    448
    
    
    $
    877
    
    
    $
    1,325Restructuring charge
    
    
    
    
    
    
    259
    
    
    
    259Adjustments
    
    
    14
    
    
    
    10
    
    
    
    24Cash payments
    
    
    (191
    )
    
    
    (576
    )
    
    
    (767
    )Balance at June 30, 2007
    
    
    271
    
    
    
    570
    
    
    
    841
 12




---



##### 



8. SHARE CAPITAL
 (a)
    
    Share Buy-Back Program
   (b)
    
    Stock Options
  Three months ended
    
    
    Six months endedJune 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Annualized volatility
    
    
    37.0
    %
    
    
    45.2
    %
    
    
    37.0
    %
    
    
    45.6
    %Risk-free interest rate
    
    
    4.4
    %
    
    
    4.3
    %
    
    
    4.4
    %
    
    
    4.2
    %Expected life (years)
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.3
    
    
    
    2.9
   (In thousands of U.S. dollars,except share information)
    
    Three months ended
    
    
    Six months endedJune 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Cost of sales
    
    $
    3
    
    
    $
    13
    
    
    $
    3
    
    
    $
    23Research and development
    
    
    470
    
    
    
    562
    
    
    
    1,070
    
    
    
    1,268Selling, general and administrative
    
    
    259
    
    
    
    299
    
    
    
    548
    
    
    
    668Discontinued operations
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    148Share based compensation expense
before income taxes
    
    
    732
    
    
    
    956
    
    
    
    1,621
    
    
    
    2,107Related income tax benefits
    
    
    (23
    )
    
    
    
    
    
    
    (81
    )
    
    
    Share based compensation, net of
income taxes
    
    $
    709
    
    
    $
    956
    
    
    $
    1,540
    
    
    $
    2,107
  13




---



##### 



9. NET PRODUCT REVENUE
  For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Visudyne® sales by Novartis Ophthalmics
    
    $
    59,346
    
    
    $
    95,341
    
    
    $
    120,581
    
    
    $
    202,123Less: Marketing and distribution costs
    
    
    (26,449
    )
    
    
    (33,060
    )
    
    
    (53,282
    )
    
    
    (64,507
    )Less: Inventory costs
    
    
    (2,870
    )
    
    
    (5,226
    )
    
    
    (5,956
    )
    
    
    (10,706
    )Less: Royalties to third parties
    
    
    (1,256
    )
    
    
    (2,031
    )
    
    
    (2,539
    )
    
    
    (4,361
    )$
    28,771
    
    
    $
    55,024
    
    
    $
    58,804
    
    
    $
    122,549QLTs 50% share of Novartis
Ophthalmics net proceeds from
Visudyne sales
    
    $
    14,386
    
    
    $
    27,512
    
    
    $
    29,402
    
    
    $
    61,274Add: Advance on inventory costs from
Novartis Ophthalmics
    
    
    2,092
    
    
    
    4,066
    
    
    
    4,174
    
    
    
    8,770Add: Royalties reimbursed to QLT
    
    
    1,258
    
    
    
    2,046
    
    
    
    2,542
    
    
    
    4,392Add: Other costs reimbursed to QLT
    
    
    1,255
    
    
    
    1,252
    
    
    
    3,431
    
    
    
    1,986Revenue from Visudyne® sales
    
    $
    18,991
    
    
    $
    34,876
    
    
    $
    39,549
    
    
    $
    76,422Net product revenue from Eligard®
    
    
    8,890
    
    
    
    6,538
    
    
    
    13,448
    
    
    
    11,797$
    27,881
    
    
    $
    41,414
    
    
    $
    52,997
    
    
    $
    88,219
   10. DISCONTINUED OPERATIONS
 Accounting for the Impairment or Disposal of
Long-lived Assets
  14




---



##### 



For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net revenue
    
    $
    
    
    
    $
    4,372
    
    
    $
    
    
    
    $
    7,905Pretax losses
    
    $
    
    
    
    $
    (756
    )
    
    $
    
    
    
    $
    (1,342
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Loss on disposal
    
    
    (271
    )
    
    
    
    
    
    
    (271
    )
    
    
    Income tax on disposal
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    Net loss from discontinued operations
    
    $
    (171
    )
    
    $
    (756
    )
    
    $
    (171
    )
    
    $
    (1,278
    )
 11. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
 .
 Maturity Period
    
    
    Quantity (millions)
    
    
    Average PriceSwiss franc / Canadian dollar option-dated
forward contract to sell CHF
    
    
    2007
    
    
    CHF 7.4
    
    0.91853 per CHFCanadian dollar / Swiss franc option-dated
forward contract to sell CAD
    
    
    2007
    
    
    CAD 6.7
    
    1.09940 per CHFU.S. / Canadian dollar option-dated
forward contracts to buy CAD
    
    
    2007
    
    
    USD 11.4
    
    1.07578 per USD
  12. CONTINGENCIES
 Litigation and Legal Matters
   15




---



##### 



(a) Eligard Patent Litigation
       (b) Patent Litigation with MEEI
 ®
    16




---



##### 



(c) Litigation with Biolitec, Inc.
   13. SUBSEQUENT EVENT
  17




---



##### 



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
 ® ® ®
       18




---



##### 



RECENT DEVELOPMENTS
    19




---



##### 



RESULTS OF OPERATIONS
  Revenues
 Net Product Revenue
  For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Visudyne® sales by Novartis Ophthalmics
    
    $
    59,346
    
    
    $
    95,341
    
    
    $
    120,581
    
    
    $
    202,123Less: Marketing and distribution
costs(1)
    
    
    (26,449
    )
    
    
    (33,060
    )
    
    
    (53,282
    )
    
    
    (64,507
    )Less: Inventory costs(2)
    
    
    (2,870
    )
    
    
    (5,226
    )
    
    
    (5,956
    )
    
    
    (10,706
    )Less: Royalties to third parties(3)
    
    
    (1,256
    )
    
    
    (2,031
    )
    
    
    (2,539
    )
    
    
    (4,361
    )$
    28,771
    
    
    $
    55,024
    
    
    $
    58,804
    
    
    $
    122,549QLTs 50% share of Novartis Ophthalmics net proceeds
from Visudyne® sales
    
    $
    14,386
    
    
    $
    27,512
    
    
    $
    29,402
    
    
    $
    61,274Add: Advance on inventory costs from Novartis
Ophthalmics(4)
    
    
    2,092
    
    
    
    4,066
    
    
    
    4,174
    
    
    
    8,770Add: Royalties reimbursed to QLT(5)
    
    
    1,258
    
    
    
    2,046
    
    
    
    2,542
    
    
    
    4,392Add: Other costs reimbursed to QLT(6)
    
    
    1,255
    
    
    
    1,252
    
    
    
    3,431
    
    
    
    1,986Revenue from Visudyne® sales
    
    $
    18,991
    
    
    $
    34,876
    
    
    $
    39,549
    
    
    $
    76,422Net product revenue from Eligard®
    
    
    8,890
    
    
    
    6,538
    
    
    
    13,448
    
    
    
    11,797$
    27,881
    
    
    $
    41,414
    
    
    $
    52,997
    
    
    $
    88,219
 (1)
    
    Less: Marketing and distribution costsThis represents Novartis Ophthalmics 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 Ophthalmics (a division of Novartis Pharma AG). The costs incurred by Novartis
Ophthalmics 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 Ophthalmics cost of goods sold related to Visudyne. It includes the
cost of bulk Visudyne we ship to Novartis Ophthalmics, plus Novartis Ophthalmics packaging
and labelling costs, freight and custom duties.(3)
    
    Less: Royalties to third partiesThis represents the royalty expenses we incur and charge to Novartis Ophthalmics pursuant to
the PDT Product Development, Manufacturing and Distribution Agreement between QLT and Novartis
Ophthalmics. The amounts are calculated by us based on specified royalty rates from existing
license agreements with our licensors of certain Visudyne patent rights.
 20




---



##### 



(4)
    
    Add: Advance on inventory costs from Novartis OphthalmicsThis represents the amount that Novartis Ophthalmics advances to us for shipments of bulk
Visudyne. The price of the Visudyne shipments is determined based on the existing agreement
between QLT and Novartis Ophthalmics 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
Ophthalmics 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 Ophthalmics to us of our portion of the marketing
and distribution costs described in (1) above. This expense includes marketing support, legal
and administrative expenses that we incur in support of Visudyne sales.
    Net Royalties
  21




---



##### 



Costs and Expenses
 Cost of Sales
    Research and Development
   
    
    changes in the regulatory environment,
    
    introduction of competing treatments,
    
    unexpected safety issues,
    
    patent maintenance and enforcement issues,
    
    changes in the commercial marketplace,
    
    difficulties in enrolling patients,
    
    delays in study progression,
    
    inability to develop cost effective manufacturing methods that comply with regulatory standards,
    
    uncertainties related to collaborative arrangements,
    
    environmental risks, and
    
    other factors discussed under Item 1A, Risk Factors in this Report.
 22




---



##### 



For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,(In thousands of U.S. dollars)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Ocular
    
    $
    6,067
    
    
    $
    4,734
    
    
    $
    11,736
    
    
    $
    8,666Dermatology
    
    
    2,974
    
    
    
    4,295
    
    
    
    5,457
    
    
    
    8,683Urology and Oncology
    
    
    495
    
    
    
    1,655
    
    
    
    1,243
    
    
    
    3,635Other (including Atrigel programs
not in the above therapeutic areas)
    
    
    1,539
    
    
    
    5,083
    
    
    
    3,722
    
    
    
    9,156$
    11,075
    
    
    $
    15,767
    
    
    $
    22,158
    
    
    $
    30,140
 Selling, General and Administrative Expenses
  Litigation
  Restructuring Charge (Recovery)
  Investment and Other Income
 Net Foreign Exchange Losses
  23




---



##### 



For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands of U.S. dollars)Cash and cash equivalents and
short-term investments
    
    $
    (13,212
    )
    
    $
    (7,909
    )
    
    $
    (14,764
    )
    
    $
    (7,039
    )U.S. dollar long-term debt
    
    
    13,933
    
    
    
    8,045
    
    
    
    15,685
    
    
    
    6,969Foreign exchange contracts
    
    
    1,575
    
    
    
    (2,192
    )
    
    
    1,989
    
    
    
    (3,440
    )Foreign currency receivables and payables
    
    
    (2,744
    )
    
    
    (49
    )
    
    
    (3,333
    )
    
    
    43Net foreign exchange gains (losses)
    
    $
    (448
    )
    
    $
    (2,105
    )
    
    $
    (423
    )
    
    $
    (3,467
    )
 Interest Income
  Interest Expense
  Other
  Discontinued Operations
 Accounting for the Impairment or Disposal of Long-lived Assets
 LIQUIDITY AND CAPITAL RESOURCES
   24




---



##### 



Interest and Foreign Exchange Rates
     Maturity Period
    
    
    Quantity (millions)
    
    
    Average PriceSwiss franc / Canadian dollar option-dated
forward contract to sell CHF
    
    
    2007
    
    
    CHF 7.4
    
    0.91853 per CHFCanadian dollar / Swiss franc option-dated
forward contract to sell CAD
    
    
    2007
    
    
    CAD 6.7
    
    1.09940 per CHFU.S. / Canadian dollar option-dated
forward contracts to buy CAD
    
    
    2007
    
    
    USD 11.4
    
    1.07578 per USD
 25




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##### 



Contractual Obligations
  Off-Balance Sheet Arrangements
   General
    CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Recently Issued and Recently Adopted Accounting Standards
 Accounting for Uncertainty in Income Taxes
 an Interpretation of FASB Statement No. 109
 Accounting for Certain Hybrid Financial Instruments
- an amendment of FASB statement 133 and 140
 26




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##### 



Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115
 ,
Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research
and Development Activities.
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
    
    anticipated levels of future sales of our products;
    
    our expectations regarding European Visudyne label changes, reimbursement and sales;
    
    anticipated future operating results;
    
    our expectations as to the outcome of the appeal of the judgment in the Massachusetts
Eye and Ear Infirmary, or MEEI, litigation against us;
    
    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 U.S. Food and Drug Administration, or 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;
    
    the anticipated timing and progress of 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.
  27




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##### 



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  ITEM 4.
    
    CONTROLS AND PROCEDURES
        28




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##### 



PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  ITEM 1A.
    
    RISK FACTORS
  We face intense competition, which may limit our commercial opportunities and our ability to
generate revenues.
   If we do not sustain profitability, shareholders may lose their investment.
  If there is an adverse outcome in our pending litigation or other legal actions, our business may
be harmed.
  29




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##### 



We derive a significant portion of our revenue from sales of Visudyne and Eligard, and any decrease
in sales of Visudyne or Eligard would harm our business.
  
    
    product manufacturing or supply interruptions,
    
    the development of competitive products by other companies,
    
    marketing or pricing actions by our competitors,
    
    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.
   30




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##### 



Our revenues depend on payment and reimbursement from third party payors, and if they reduce or
refuse payment or reimbursement, the use and sales of our products will suffer, we may not increase
our market share, and our revenues and profitability will suffer.
   ®
 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.
 31




---



##### 



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.
     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.
   32




---



##### 



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.
    33




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##### 



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.
   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.
  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.
  34




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##### 



The growth of our business depends 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 have recently undergone significant strategic and organizational change. Failure to manage
disruption to the business or the loss of key personnel could have an adverse effect on our
business.
  We rely on our employees and consultants to keep our trade secrets confidential.
  If we cannot successfully develop, license or acquire new products in targeted therapeutic
segments, we may not be able to sustain revenue growth and we may not be able to compete
effectively.
    Our products in clinical trials may not achieve favorable results, may fail to achieve or maintain
regulatory approvals or market acceptance, or may encounter difficulties with proprietary rights or
manufacturing, any of which could adversely affect our prospects for future revenue growth.
 35




---



##### 



If we do not achieve our projected development goals in the time frames we announce and expect, the
commercialization of our products may be delayed and, as a result, our business could be harmed.
  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.
   36




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##### 



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.
  Our provision for income taxes and effective income tax rate may vary significantly and may
adversely affect our results of operations and cash resources.
  37




---



##### 



We may need additional capital in the future, and our prospects for obtaining it are uncertain
  Our indebtedness and debt service obligations will require a significant amount of cash and may
adversely affect our financial position and cash resources.
  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 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,
 38




---



##### 




    
    unfavorable outcome of the German Eligard patent litigation commenced against QLT USA,
Inc.s German licensees by Takeda Chemical industries Ltd. and Takeda Pharma Gmbh,
    
    unfavorable outcome in the appeal of the judgment of the District Court in the
litigation commenced by Massachusetts Eye and Ear Infirmary against us,
    
    higher than expected operating expenses as a result of increased costs associated with
the development or commercialization of Visudyne, Eligard, Aczone and our other products
and candidates, and
    
    increased operating expenses as a result of product, technology or other acquisitions or
business combinations.
  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.
   The Toronto Stock Exchange
    
    
    The Nasdaq Stock MarketPeriod
    
    High
    
    
    Low
    
    
    High
    
    
    Low2007 (through June 30)
    
    CDN$11.50
    
    CDN$7.35
    
    US$
    9.92
    
    
    US$
    6.642006
    
    CDN$10.35
    
    CDN$6.84
    
    US$
    8.98
    
    
    US$
    5.952005
    
    CDN$21.04
    
    CDN$7.03
    
    US$
    17.19
    
    
    US$
    6.05
 Various provisions of our charter and our shareholder rights plan may impede a change in control
that is beneficial to our shareholders.
  39




---



##### 



ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   Issuer Purchases of Equity SecuritiesMaximum Numberof Shares (orTotal Number of
    
    
    Approximate DollarTotal
    
    
    
    
    
    
    Shares Purchased as
    
    
    Value) that MayNumber of
    
    
    Average
    
    
    Part of Publicly
    
    
    Yet Be PurchasedShares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Under the PlansPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    or ProgramsApril 1, 2007
through April 30,
2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1, 2007 through
May 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1, 2007
through June 30,
2007
    
    
    750,000
    
    
    $
    7.82
    
    
    
    750,000
    
    
    
    $44,165,000Total
    
    
    750,000
    
    
    $
    7.82
    
    
    
    750,000
    
    
    
    $44,165,000
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   40




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##### 



Directors
    
    Shares For
    
    
    Shares Withheld
    
    
    Abstentions and Broker Non-VotesRobert L. Butchofsky
    
    
    48,748,237
    
    
    
    722,502
    
    
    0Bruce L.A. Carter
    
    
    47,213,839
    
    
    
    2,251,100
    
    
    0C. Boyd Clarke
    
    
    47,493,362
    
    
    
    1,977,377
    
    
    0Peter A. Crossgrove
    
    
    46,956,201
    
    
    
    2,508,738
    
    
    0Philip B. Livingston
    
    
    47,487,998
    
    
    
    1,982,741
    
    
    0Ian J. Massey
    
    
    47,489,111
    
    
    
    1,981,628
    
    
    0Alan C. Mendelson
    
    
    47,223,821
    
    
    
    2,246,918
    
    
    0Richard R. Vietor
    
    
    47,488,509
    
    
    
    1,982,230
    
    
    0L. Jack Wood
    
    
    47,239,821
    
    
    
    2,230,918
    
    
    0
  Shares For
    
    Shares Withheld
    
    Abstentions and Broker Non-Votes48,808,358
    
    
    660,981
    
    
    
    0
 ITEM 6.
    
    EXHIBITS
  41




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##### 



SIGNATURES
  QLT Inc.
(Registrant)Date:
    August 8, 2007
    
    By:
    /s/  Robert L. ButchofskyRobert L. ButchofskyPresident and  Chief Executive Officer
(Principal Executive Officer)Date:
    August 8, 2007
    
    By:
    /s/  Cameron R. NelsonCameron R. NelsonVice President, Finance and Chief Financial
Officer
(Principal Financial and Accounting Officer) 42




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##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    2007 Cash Incentive Compensation Structure for Executive Officers
(incorporated by reference Item 5.02 of the Companys Current Report
on Form 8-K dated May 17, 2007 and filed with the SEC on May 23, 2007
(Commission File No. 000-17082)).10.2
    
    2007 Base Salary for Chief Executive Officer (incorporated by
reference to Item 5.02 of the
Companys Current Report on Form 8-K dated April 16, 2007 and filed
with SEC on April 20, 2007 (Commission File No. 000-17082)).31.1
    
    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.
 43