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10-Q 1 d501585d10q.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-17082

QLT INC.

(Exact name of registrant as specified in its charter)


British Columbia, Canada		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

101 – 887 Great Northern Way, Vancouver, B.C., Canada		V5T 4T5
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (604) 707-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 29, 2013, the registrant had 50,539,500 outstanding shares of common stock.

QLT INC.

QUARTERLY REPORT ON FORM 10-Q

March 31, 2013

TABLE OF CONTENTS


ITEM		PAGE
	PART I - FINANCIAL INFORMATION

1.	FINANCIAL STATEMENTS		1

	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012		1

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2013 and 2012		2

	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012		3

	Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2013 and year ended December 31, 2012		4

	Notes to Unaudited Condensed Consolidated Financial Statements		5

2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		14

3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		21

4.	CONTROLS AND PROCEDURES		21

	PART II - OTHER INFORMATION

1.	LEGAL PROCEEDINGS		22

1A.	RISK FACTORS		22

6.	EXHIBITS		26

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QLT Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands of U.S. dollars)	March 31, 2013			December 31, 2012
ASSETS
Current assets
Cash and cash equivalents	$	298,345		$	307,384
Restricted cash (Note 8)		7,500			7,500
Accounts receivable		1,877			3,960
Current portion of contingent consideration (Notes 6 and 9)		41,305			41,255
Income taxes receivable		561			554
Current portion of deferred income tax assets		479			644
Assets held for sale (Note 8)		150			300
Prepaid and other		2,366			1,442

		352,583			363,039
Property, plant and equipment		2,487			2,655
Deferred income tax assets		285			370
Contingent consideration (Notes 6 and 9)		25,036			35,154

	$	380,391		$	401,218

LIABILITIES
Current liabilities
Accounts payable	$	3,334		$	6,121
Accrued liabilities (Note 2)		1,228			2,515
Accrued restructuring charge (Note 5)		1,857			1,933
Deferred income		—			456

		6,419			11,025
Uncertain tax position liabilities		1,851			1,875

		8,270			12,900

SHAREHOLDERS’ EQUITY
Share capital (Note 4)
Authorized
500,000,000 common shares without par value
5,000,000 first preference shares without par value, issuable in series
Issued and outstanding		461,323			471,712
Common shares
March 31, 2013 – 50,529,611 shares
December 31, 2012 – 51,589,405 shares
Additional paid-in capital		296,643			296,024
Accumulated deficit		(488,814	)		(482,387	)
Accumulated other comprehensive income		102,969			102,969

		372,121			388,318

	$	380,391		$	401,218

See the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

QLT Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)


	Three months ended March 31,
(In thousands of U.S. dollars except share and per share information)	2013			2012
Expenses
Research and development	$	4,080		$	6,517
Selling, general and administrative		2,082			4,108
Depreciation		235			363
Restructuring charges (Note 5)		822			—

		7,219			10,988

Operating loss		(7,219	)		(10,988	)
Investment and other income
Net foreign exchange losses		(66	)		(117	)
Interest income		57			33
Fair value change in contingent consideration (Notes 6 and 9)		795			1,942
Other gains		—			52

		786			1,910

Loss from continuing operations before income taxes		(6,433	)		(9,078	)
Provision for income taxes (Note 7)		(183	)		(297	)

Loss from continuing operations		(6,616	)		(9,375	)

Income (loss) from discontinued operations, net of income taxes (Note 8)		189			(902	)

Net loss and comprehensive loss	$	(6,427	)	$	(10,277	)

Basic and diluted net loss per common share
Continuing operations	$	(0.13	)	$	(0.19	)
Discontinued operations		0.00			(0.02	)

Net loss per common share	$	(0.13	)	$	(0.21	)

Weighted average number of common shares outstanding (thousands)
Basic and diluted		50,589			48,984

See the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

QLT Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended March 31,
(In thousands of U.S. dollars)	2013			2012
Cash used in operating activities
Net loss	$	(6,427	)	$	(10,277	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		235			408
Share-based compensation		48			721
Unrealized foreign exchange losses		209			197
Deferred income taxes		269			193
Recovery on assets held for sale		(153	)		—
Fair value change in contingent consideration (Notes 6 and 9)		512			—
Changes in non-cash operating assets and liabilities
Accounts receivable		1,021			121
Inventories		—			(425	)
Prepaid and other		(924	)		(1,039	)
Accounts payable		(2,230	)		146
Income taxes receivable / payable		(15	)		93
Accrued liabilities		(1,345	)		(1,876	)
Accrued restructuring		(30	)		—
Deferred income		(456	)		—

		(9,286	)		(11,738	)

Cash provided by investing activities
Net proceeds from sale of property, plant and equipment		190			—
Purchase of property, plant and equipment		—			(492	)
Net proceeds from sale of other assets		—			250
Proceeds from mortgage receivable		—			5,874
Proceeds from contingent consideration (Notes 6 and 9)		9,557			6,980

		9,747			12,612

Cash (used in) provided by financing activities
Common shares repurchased, including fees		(14,079	)		—
Issuance of common shares		4,761			720

		(9,318	)		720

Effect of exchange rate changes on cash and cash equivalents		(182	)		2

Net (decrease) increase in cash and cash equivalents		(9,039	)		1,596
Cash and cash equivalents, beginning of period		307,384			205,597

Cash and cash equivalents, end of period	$	298,345		$	207,193

Supplementary cash flow information:
Interest paid	$	—		$	—
Income taxes paid		1			83

See the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

QLT Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


	Common Shares						Additional						Accumulated Other			Total
(All amounts except share and per share information are expressed in thousands of U.S. dollars)	Shares			Amount			Paid-in Capital			Accumulated Deficit			Comprehensive Income			Shareholders’ Equity
Balance at January 1, 2012		48,927,742		$	458,118		$	296,003		$	(528,085	)	$	102,969		$	329,005
Exercise of stock options, for cash, at prices ranging from CAD $2.44 to CAD $7.23 per share		4,408,867			29,666			(8,257	)		—			—			21,409
Stock-based compensation		—			—			5,902			—			—			5,902
Common share repurchase		(1,747,204	)		(16,072	)		2,376			—			—			(13,696	)
Net income		—			—			—			45,698			—			45,698

Balance at December 31, 2012		51,589,405		$	471,712		$	296,024		$	(482,387	)	$	102,969		$	388,318
Exercise of stock options, for cash, at prices ranging from CAD $2.44 to CAD $7.23 per share		631,685			5,072			(1,411	)		—			—			3,661
Stock-based compensation		—			—			48			—			—			48
Common share repurchase		(1,691,479	)		(15,461	)		1,982			—			—			(13,479	)
Net loss		—			—			—			(6,427	)		—			(6,427	)

Balance at March 31, 2013		50,529,611		$	461,323		$	296,643		$	(488,814	)	$	102,969	⁽¹⁾	$	372,121

⁽¹⁾	At March 31, 2013 our accumulated other comprehensive income is entirely related to historical cumulative translation adjustments from the application of U.S. dollar reporting when the functional currency of QLT Inc. was the Canadian dollar.

See the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Throughout this Quarterly Report on Form 10-Q (this “Report”), the words “we,” “us,” “our,” “the Company” and “QLT” refer to QLT Inc. and its wholly owned subsidiaries, QLT Plug Delivery, Inc., QLT Therapeutics, Inc. and QLT Ophthalmics, Inc., unless stated otherwise.

1. CONDENSED SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

QLT is a biotechnology company dedicated to the development and commercialization of innovative ocular products that address the unmet medical needs of patients and clinicians worldwide. On July 9, 2012, as a result of a comprehensive business and portfolio review by our Board of Directors (“the Board”), we announced a new corporate strategy and plans to restructure our operations in order to concentrate our resources on our clinical development programs related to our synthetic retinoid, QLT091001, for the treatment of certain inherited retinal diseases. In connection with this strategic restructuring of the Company, we engaged a financial advisor to determine whether to divest our business related to our commercial product, Visudyne^® and to explore the sale of our punctal plug drug delivery system technology (“the PPDS Technology”). On September 24, 2012, we completed the sale of our Visudyne business to Valeant Pharmaceuticals International, Inc. (“Valeant”) pursuant to an asset purchase agreement (the “Valeant Agreement”). On December 24, 2012, the Company entered into an exclusive option agreement with Mati Therapeutics Inc. (“Mati”) under which QLT granted Mati a 90-day option to acquire assets related to QLT’s PPDS Technology. On April 3, 2013, following Mati’s exercise of the option, we completed the sale of our PPDS Technology to Mati pursuant to an asset purchase agreement (the “Mati Agreement”). See Note 8 — Discontinued Operations and Assets Held for Sale and Note 10 — Subsequent Events.

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for the presentation of interim financial information. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations. These financial statements do not include all disclosures required for annual financial statements and should be read in conjunction with our audited consolidated financial statements and notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2012. All amounts are expressed in United States dollars unless otherwise noted.

The results of operations relating to both the punctal plug delivery system technology and our Visudyne business have been excluded from continuing operations and reported as discontinued operations for the current and prior periods. See Note 8 — Discontinued Operations and Assets Held for Sale and Note 10 — Subsequent Events.

In the opinion of management, the condensed consolidated financial statements reflect all adjustments (including reclassifications and normal recurring adjustments) necessary to present fairly the financial position at March 31, 2013, and results of operations and cash flows for all periods presented. The interim results presented are not necessarily indicative of results that can be expected for a full year.

Principles of Consolidation

These consolidated financial statements include the accounts of QLT and its subsidiaries, all of which are wholly owned. All intercompany transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting periods presented. Significant estimates are used for, but not limited, to the fair value of contingent consideration, allocation of overhead expenses to research and development, stock-based compensation, restructuring costs, and provisions for taxes, tax assets and liabilities. Actual results may differ from estimates made by management.

Segment Information

We operate in one industry segment, which is the business of developing, manufacturing, and commercializing opportunities in ophthalmology. Our chief operating decision maker reviews our operating results and manages our operations as a single operating segment. Our segment information does not include the results of businesses classified as discontinued operations.

Discontinued Operations and Assets Held for Sale

We consider assets to be held for sale when management approves and commits to a formal plan to actively market the assets for sale. Upon designation as held for sale, the carrying value of the assets is recorded at the lower of their carrying value or their estimated fair value. We cease to record depreciation or amortization expense at that time.

The results of operations, including the gain on disposal for businesses that are classified as held for sale are excluded from continuing operations and reported as discontinued operations for all periods presented. We do not expect any significant continued involvement with the businesses following their sale other than our provision of certain transition services to Valeant pursuant to the Transition Services Agreement entered into with Valeant in connection with the Valeant Agreement. Amounts billed to Valeant under the Transition Services Agreement are included within discontinued operations. See Note 8 — Discontinued Operations and Assets Held for Sale.

Income Taxes

Income taxes are reported using the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to: (i) differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and (ii) operating loss and tax credit carry forwards using applicable enacted tax rates. An increase or decrease in these tax rates will increase or decrease the carrying value of future net tax assets resulting in an increase or decrease to net income. Income tax credits, such as investment tax credits, are included as part of the provision for income taxes. The realization of our deferred tax assets is primarily dependent on generating sufficient capital gains and taxable income prior to expiration of any loss carry forward balance. A valuation allowance is provided when it is more likely than not that a deferred tax asset may not be realized. Changes in valuation allowances are included in our tax provision, or included within discontinued operations in the period of change.

Contingent Consideration

Contingent consideration arising from the sale of QLT USA and from the sale of our Visudyne business is measured at fair value. The contingent consideration is revalued at each reporting period and changes are included in continuing operations.

Net Loss Per Common Share

Basic net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed in accordance with the treasury stock method, which uses the weighted average number of common shares outstanding during the period and also includes the dilutive effect of potentially issuable common stock from outstanding stock options.

The following table sets out the computation of basic and diluted net loss per common share:


	Three months ended March 31,
(In thousands of U.S. dollars, except share and per share data)	2013			2012
Numerator:
Loss from continuing operations	$	(6,616	)	$	(9,375	)
Income (loss) from discontinued operations, net of income taxes		189			(902	)

Net loss	$	(6,427	)	$	(10,277	)

Denominator: (thousands)
Weighted average common shares outstanding		50,589			48,984
Effect of dilutive securities:
Stock options		—			—

Diluted weighted average common shares outstanding		50,589			48,984

Basic and diluted net loss per common share
Continuing operations	$	(0.13	)	$	(0.19	)
Discontinued operations		0.00			(0.02	)

Net loss	$	(0.13	)	$	(0.21	)

For the three months ended March 31, 2013, 678,745 stock options (2012 – 6,005,357 stock options) were excluded from the calculation of diluted net income (loss) per common share because their effect was anti-dilutive.

Fair Value of Financial Assets and Liabilities

The carrying values of cash and cash equivalents, restricted cash, trade receivables and payables, and contingent consideration approximate fair value. We estimate the fair value of our financial instruments using the market approach. The fair values of our financial instruments reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

2. ACCRUED LIABILITIES


(In thousands of U.S. dollars)	March 31, 2013		December 31, 2012
Compensation⁽¹⁾	$	910	$	2,270
Directors’ Deferred Share Units compensation (“DDSU”)		173		96
Other		145	$	149

	$	1,228	$	2,515

⁽¹⁾	The decrease in the accrued compensation liability is primarily due to the pay-out of employee bonuses in the three months ended March 31, 2013.

3. FOREIGN EXCHANGE FACILITY

We have a foreign exchange facility for the sole purpose of entering into foreign exchange contracts. The facility allows us to enter into a maximum of $50.0 million in spot or forward foreign exchange contracts for terms up to 15 months. The facility requires security in the form of cash or money market instruments based on the contingent credit exposure for any outstanding foreign exchange transactions. At March 31, 2013 and December 31, 2012, there was no collateral pledged as security for this facility, as we had no outstanding foreign exchange transactions.

4. SHARE CAPITAL

On April 15, 2013, we announced that, subject to shareholder approval, the Board had approved a special cash distribution to our shareholders in the amount of $200.0 million, by way of a reduction of the paid-up capital of the Company’s shares. See Note 10 — Subsequent Events.

(a) Share Repurchase Program

On October 2, 2012, we commenced a normal course issuer bid to repurchase up to 3,438,683 of our common shares, being 10% of our public float as of September 26, 2012, over a 12-month period. All purchases were effected in the open market through the facilities of the NASDAQ Stock Market, and in accordance with applicable regulatory requirements. All common shares repurchased were cancelled. Total purchases under this program, which we completed in March 2013, were 3,438,683 common shares at an average price of $7.86 per share, for a total cost of $27.0 million.

We implemented our share repurchase program pursuant to an automatic share purchase plan (the “Plan”), in accordance with applicable Canadian and US securities legislation. Under the Plan, we were able to repurchase our shares on any trading day during the share repurchase period, including during self-imposed trading blackout periods.

(b) Stock Options

We used the Black-Scholes option pricing model to estimate the value of the options at each grant date, using the following weighted average assumptions (no dividends are assumed):


	Three months ended March 31,
	2013		2012
Annualized volatility		—		50.0	%
Risk-free interest rate		—		1.4	%
Expected life (years)		—		3.7

The Black-Scholes option pricing model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including the expected stock price volatility. We project expected volatility and expected life of our stock options based upon historical and other economic data trended into future years. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of our stock options.

There were no stock options granted during the three months ended March 31, 2013. The weighted average grant date fair value of stock options granted during the three months ended March 31, 2012 was CAD $2.69.

Total estimated compensation cost related to non-vested stock options and the expected and weighted average periods over which such costs are expected to be recognized at March 31, 2013 were as follows:


	March 31, 2013
Unrecognized estimated compensation costs (in thousands of U.S. dollars)	$	662
Expected period of recognition of compensation cost (in months)		36
Expected weighted average period of compensation cost to be recognized (in years)		1.86

The intrinsic value of stock options exercised and the related cash from exercise of stock options during the three months ended March 31, 2013 and 2012 was as follows:


	Three months ended March 31,
(In thousands of U.S. dollars)	2013		2012
Intrinsic value of stock options exercised	$	1,336	$	433
Cash from exercise of stock options	$	3,661	$	608

Upon option exercise, we issue new shares of stock.

The impact on our results of operations of recording stock-based compensation for the three months ended March 31, 2013 and 2012 was as follows:


	Three months ended March 31,
(In thousands of U.S. dollars)	2013		2012
Research and development	$	30	$	212
Selling, general and administrative		15		227
Discontinued operations		3		282

Stock-based compensation expense before income taxes		48		721
Related income tax benefits		—		(44	)

Stock-based compensation, net of income taxes	$	48	$	677

There was no share-based compensation capitalized as part of inventory during the three months ended March 31, 2013. For the same period in the prior year, the share-based compensation capitalized as part of inventory and the related tax benefits recorded were negligible.

No cash payments were made under the Directors Deferred Share Units Plan during the three months ended March 31, 2013 and 2012.

The impact on our results of operations of recording DSU compensation for the three months ended March 31, 2013 and 2012 was as follows:


	Three months ended March 31,
(In thousands of U.S. dollars)	2013		2012
Research and development	$	24	$	22
Selling, general and administrative		55		52

Deferred share unit compensation expense	$	79	$	74

5. RESTRUCTURING CHARGE

In July 2012 we restructured our operations in order to concentrate our resources on our clinical development programs related to our synthetic retinoid, QLT091001, for the treatment of certain inherited retinal diseases. Following the sale of Visudyne to Valeant, we further reduced our workforce to better align the Company’s resources with our corporate objectives. We have provided or will be providing approximately 178 employees with severance and support to assist with outplacement and we recorded $16.9 million of restructuring charges of which $3.1 million was included in discontinued operations during the year ended December 31, 2012. During the three months ended March 31, 2013, we recorded further restructuring charges of $0.8 million. Subsequent to March 31, 2013, we expect to record additional restructuring charges of approximately $0.8 million related to severance, termination benefits and outplacement support, as we complete final activities associated with this restructuring. We anticipate paying most of the remaining employee termination costs during the second quarter of 2013.

The details of our restructuring accrual and activity are as follows:


(In thousands of U. S. dollars)	Employee Termination costs⁽¹⁾			Asset Write-downs			Contract Termination costs⁽²⁾			Total
Restructuring charge	$	13,016		$	—		$	834		$	13,850
Foreign exchange		20			—			—			20
Cash payments		(13,243	)		—			(718	)		(13,961	)
Discontinued operations		1,561			1,056			463			3,080
Non-cash portion		—			(1,056	)		—			(1,056	)

Balance at December 31, 2012	$	1,354		$	—		$	579		$	1,933
Restructuring charge		571						251			822
Foreign exchange		47			—			—			47
Cash payments		(757	)		—			(356	)		(1,113	)
Discontinued operations		121			(153	)		47			15
Non-cash portion		—			153			—			153

Balance at March 31, 2013	$	1,336		$	—		$	521		$	1,857

⁽¹⁾	Costs include severance, termination benefits, and outplacement support.

⁽²⁾	Costs include lease costs related to excess office space.

6. CONTINGENT CONSIDERATION

Related to Sale of QLT USA, Inc. (“QLT USA”)

On October 1, 2009, we divested the Eligard^® product line as part of the sale of all of the shares of our U.S. subsidiary, QLT USA to TOLMAR Holding, Inc. (“Tolmar”) for up to an aggregate $230.0 million plus cash on hand of $118.3 million. Pursuant to the stock purchase agreement, we received $20.0 million on closing and $10.0 million on October 1, 2010 and we are entitled to future consideration payable on a quarterly basis in amounts equal to 80% of the royalties paid under the license agreement with Sanofi Synthelabo Inc. for the commercial marketing of Eligard in the U.S. and Canada, and the license agreement with MediGene Aktiengesellschaft which, effective March 1, 2011, was assigned to Astellas Pharma Europe Ltd., for the commercial marketing of Eligard in Europe. The estimated fair value of these expected future quarterly payments is reflected as Contingent Consideration on our Condensed Consolidated Balance Sheet and represents a non-cash investing activity. We are entitled to these payments until the earlier of our receipt of the additional $200.0 million or October 1, 2024.

During the three months ended March 31, 2013, proceeds received on collection of the contingent consideration totalled $10.9 million (2012—$8.9 million). Approximately $9.6 million (2012—$7.0 million) of the proceeds were included within cash provided by investing activities in the Condensed Consolidated Statements of Cash Flows. The remaining $1.3 million (2012—$1.9 million) of the proceeds were recorded in the Condensed Consolidated Statement of Operations and Comprehensive Loss as the fair value change in contingent consideration and were therefore reflected in the net loss line item within cash used in operating activities in the Condensed Consolidated Statements of Cash Flows. As of March 31, 2013, we had received an aggregate $134.1 million of contingent consideration. We expect to receive the remaining $65.9 million on a quarterly basis over the next two to three years.

Related to sale of Visudyne

On September 24, 2012, we completed the sale of our Visudyne business to Valeant Pharmaceuticals International, Inc. (“Valeant”). Pursuant to the Valeant Agreement, we received a payment of $112.5 million at closing (of which $7.5 million is held in escrow) and we are also eligible to receive additional amounts following the achievement of certain milestones, including: (i) $5.0 million upon receipt of the registration required for commercial sale of the Qcellus lasers (the “Laser Registration”) in the United States by December 31, 2013, $2.5 million if the Laser Registration has been obtained after December 31, 2013 but before January 1, 2015, and $0 if the Laser Registration is obtained thereafter; (ii) up to $5.0 million in each calendar year commencing January 1, 2013 (up to a maximum of $15.0 million in the aggregate) for annual net royalties exceeding $8.5 million pursuant to the Amended and Restated PDT Product Development, Manufacturing and Distribution Agreement with Novartis (the “Novartis Agreement”) or from other third-party sales of Visudyne outside of the United States; and (iii) a royalty on net sales attributable to new indications for Visudyne, if any should be approved by the FDA. The estimated fair value of $4.7 million on March 31, 2013, of the aggregate contingent payments of $20.0 million relating to sale of Visudyne is also reflected as Contingent Consideration on our Condensed Consolidated Balance Sheet and represents a non-cash investing activity. The estimated fair value of the contingent consideration related to net royalties pursuant to the Novartis Agreement is based on historical sales, pricing, and foreign exchange data as well as expected competition and current exchange rates.

During the three months ended March 31, 2013, no proceeds were received on collection of the contingent consideration related to the sale of Visudyne and we recorded a decrease in the fair value of the contingent consideration of approximately $0.5 million in the Condensed Consolidated Statement of Operations and Comprehensive Loss. We currently expect to receive $5.0 million of contingent consideration related to Laser Registration in 2013.

The above contingent consideration payments relating to both the sale of QLT USA and the sale of our Visudyne business are not generated from a migration or continuation of activities and therefore are not direct cash flows of the divested business. See Note 8 — Discontinued Operations and Assets Held for Sale and Note 9—Financial Instruments and Concentration of Credit Risk.

7. INCOME TAXES

The provision for income taxes for the three months ended March 31, 2013 and 2012 of $0.2 million and $0.3 million respectively, related primarily to the current period gain on the fair value change of our Eligard related contingent consideration and reflected that insufficient evidence existed to support current or future realization of the tax benefits associated with our development expenditures. The provision for income taxes on discontinued operations for the three months ended March 31, 2013 and 2012 of $0.1 million each, was inconsequential and reflected the existence of insufficient evidence to support current or future realization of the tax benefits associated with expenditures related to our discontinued operations.

As insufficient evidence exists to support current or future realization of the tax benefits associated with the vast majority of our current and prior period operating expenditures, the benefit of certain tax assets was not recognized in the three months ended March 31, 2013 and 2012.

8. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

On September 24, 2012, we completed the sale of our Visudyne^® business to Valeant pursuant to the Valeant Agreement. Under the terms of the Valeant Agreement, we received a payment of $112.5 million at closing and are also eligible to receive additional amounts of up to $5.0 million in contingent payments relating to Laser Registration, up to $15.0 million in contingent payments relating to royalties on sales of Visudyne under the Novartis Agreement or from other third party sales of Visudyne outside of the U.S. and a royalty on net sales of new indications for Visudyne, if any should be approved. The Valeant Agreement provides that $7.5 million of the purchase price will be held in escrow for one year following the closing date to satisfy indemnification claims that Valeant may have under the Valeant Agreement. This amount is reflected as Restricted Cash on our Consolidated Balance Sheet. Following the divestiture, we will not have significant continuing involvement in the operations or cash flows of the Visudyne business other than our provision of certain transition services to Valeant pursuant to the Transition Services Agreement. Most of the transition services related activities will be completed in the third quarter of 2013.

With regards to our PPDS Technology, on December 24, 2012, we entered into an exclusive option agreement with Mati, under which we granted Mati a 90-day option to acquire assets related to our PPDS Technology in exchange for $0.5 million. We recognized the $0.5 million over the 90 day option term in discontinued operations as we had a continuing performance obligation under the option agreement to maintain the related intellectual property. On April 3, 2013, following Mati’s exercise of the option, we completed the sale of our PPDS Technology to Mati pursuant to the Mati Agreement. See Note 10 — Subsequent Events.

The results of operations relating to both our PPDS Technology and our Visudyne business have been excluded from continuing operations and reported as discontinued operations for all periods presented. In addition, the related long-lived assets have been reclassified as held for sale in the Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012.

The following assets were segregated and included in Assets held for sale in the Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, and relate to our PPDS Technology and to Visudyne:


(In thousands of U.S. dollars)	March 31, 2013		December 31, 2012
Assets held for sale
Property, plant and equipment	$	150	$	300

	$	150	$	300

Operating results of our PPDS Technology and our Visudyne business included in discontinued operations are summarized as follows:


	Three months ended March 31,
(In thousands of U.S. dollars)	2013			2012
Total revenues	$	—		$	8,991

Recovery on assets held for sale ⁽¹⁾		153			—
Operating pre-tax income (loss)		262			(830	)

Pre-tax income (loss)⁽²⁾		262			(830	)

Provision for income taxes		(73	)		(72	)

Net income (loss) from discontinued operations	$	189		$	(902	)

⁽¹⁾	Relates to an increase in fair value on previously impaired equipment in connection with the sale of our PPDS Technology to Mati. See Note 10 — Subsequent Events.

⁽²⁾	The three months ended March 31, 2013 and 2012, include $0.1 million and $5.6 million, respectively, of pre-tax loss related to our PPDS Technology. The remaining amounts relate to our Visudyne business.

9. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

We have various financial instruments that must be measured under the fair value standard including cash and cash equivalents, restricted cash, contingent consideration and, from time to time, forward currency contracts. Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.

The following tables provide information about our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value:


	Carrying Value March 31, 2013		Fair Value Measurements at March 31, 2013
(In thousands of U.S. dollars)			Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	298,345	$	298,345	$	—	$	—
Restricted cash		7,500		7,500		—		—
Contingent consideration⁽¹⁾		66,341		—		—		66,341

Total	$	372,186	$	305,845	$	—	$	66,341


	Carrying Value December 31, 2012		Fair Value Measurements at December 31, 2012
(In thousands of U.S. dollars)			Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	307,384	$	307,384	$	—	$	—
Restricted cash		7,500		7,500		—		—
Contingent consideration⁽¹⁾		76,409		—		—		76,409

Total	$	391,293	$	314,884	$	—	$	76,409

⁽¹⁾

To estimate the fair value of contingent consideration at March 31, 2013, and December 31, 2012, we used a discounted cash flow model based on estimated timing and amount of future cash flows, discounted using a cost of capital of 8% for the contingent consideration related to the Eligard and Visudyne royalties and 2.15% and 3.5%, respectively, for the contingent consideration related to the Laser Registration, determined by management after considering available market and industry information. Future cash flows were estimated by utilizing external market research to estimate market size, to which we applied market share, pricing and foreign exchange assumptions based on historical sales data, expected competition and current exchange rates. If the discount rate were to increase by 1%, the contingent consideration related to the sale of QLT USA would decrease by $0.5 million, from $61.6 million to $61.2 million and the contingent consideration related to the sale of our Visudyne business would decrease by a negligible amount. If estimated future sales of Eligard were to decrease by 10%, the contingent consideration related to the sale of QLT USA would decrease by $0.4 million, from $61.6 million to $61.3 million. If estimated future sales of Visudyne were to decrease by 10%, the contingent consideration related to the sale of our Visudyne business would decrease by a negligible amount.

The following table represents a reconciliation of our asset (contingent consideration) measured and recorded at fair value on a recurring basis, using significant unobservable inputs (Level 3):


	Level 3
(In thousands of U.S. dollars)	Related to Sale of QLT USA			Related to Sale of Visudyne			Total
Balance at January 1, 2012	$	99,947		$	—		$	99,947
Transfers / Additions to Level 3		—			5,364			5,364
Settlements		(37,117	)		—			(37,117	)
Fair value change in contingent consideration		8,365			(150	)		8,215

Balance at December 31, 2012	$	71,195		$	5,214		$	76,409
Transfers / Additions to Level 3		—			—			—
Settlements		(10,863	)		—			(10,863	)
Fair value change in contingent consideration		1,307			(512	)		795

Balance at March 31, 2013	$	61,639		$	4,702		$	66,341	⁽¹⁾

⁽¹⁾	Comprised of $41.3 million as current portion of contingent consideration and $25.0 million as long-term portion of contingent consideration on the Consolidated Balance Sheet.

As of each of March 31, 2013 and December 31, 2012, we had no outstanding forward foreign currency contracts.

Other financial instruments that potentially subject us to concentration of credit risk include our cash, cash equivalents, restricted cash, accounts receivable and contingent consideration. To limit our credit exposure in regards to cash and cash equivalents, we deposit our cash with high quality financial institutions and the primary goals of our treasury policy are capital preservation and liquidity. Our treasury policy limits investments to certain money market securities issued by governments, financial institutions and corporations with investment-grade credit ratings, and places restrictions on maturities and concentration by issuer.

10. SUBSEQUENT EVENTS

On April 15, 2013, we announced that the Board has approved a special cash distribution to shareholders in the amount of $200.0 million, by way of a reduction of the paid-up capital of the common shares, resulting in the return of approximately $3.95 per share (the “Cash Distribution”). The Cash Distribution to shareholders will be made to shareholders without Canadian withholding taxes of up to 25% being payable, pursuant to an Advance Tax Ruling received from Canadian tax authorities.

The Cash Distribution is subject to shareholder approval by way of a special resolution to be sought at our annual and special meeting of shareholders scheduled to be held on June 14, 2013 (the “Meeting”). The final amount of the Cash Distribution per share will be determined based upon the number of issued and outstanding shares on the record date for the distribution, which is expected to be on or about June 24, 2013 (the “Record Date”). If the Cash Distribution is approved by shareholders at the Meeting, it is expected that the Cash Distribution will be paid to shareholders of record on the Record Date on or about June 25, 2013, subject to applicable stock exchange rules.

On April 3, 2013, we completed the sale of our PPDS Technology to Mati. As previously reported, on December 24, 2012, we had entered into an exclusive option agreement with Mati pursuant to which we had granted Mati a 90-day option to acquire assets related to our PPDS Technology in exchange for $0.5 million. On April 3, 2013, following Mati’s exercise of the option, we completed the sale of our PPDS Technology to Mati pursuant to the Mati Agreement. Under the terms of the Mati Agreement, we received an additional payment of approximately $0.8 million at closing and are eligible to receive potential payments upon the satisfaction of certain product development and commercialization milestones that could reach $19.5 million (or exceed that amount if more than two products are commercialized), a low single digit royalty on world-wide net sales of all products using or developed from the PPDS Technology and a fee on payments received by Mati in respect of the PPDS Technology other than net sales.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements and notes thereto, which are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) and our audited consolidated financial statements and notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2012 (our “2012 Annual Report”).

All of the following amounts are expressed in U.S. dollars unless otherwise indicated.

Note regarding Trademarks

The following words used in this Report are trademarks:

•

Eligard^® is a registered trademark of Sanofi S.A.

•

Visudyne^® is a registered trademark of Novartis AG.

•

Qcellus™ is a trademark of Valeant Pharmaceuticals International, Inc.

Any words used in this Report that are trademarks but are not referred to above are the property of their respective owners.

Overview

Corporate Restructuring

In connection with the restructuring, following the departure of Robert Butchofsky, the Company’s former President and Chief Executive Officer, on August 2, 2012, the Board formed an Executive Transition Committee currently composed of Directors Jeffrey Meckler and Dr. John Kozarich to perform the function of the Chief Executive Officer on an interim basis while the Board determines the resources and management necessary to pursue the Company’s new strategy. Jeffrey Meckler serves as Chairman of the Committee.

Sales of Assets and Discontinued Operations

Visudyne

In September 2012, in connection with the strategic restructuring, we sold our only commercial product, Visudyne, to Valeant Pharmaceuticals International, Inc. (“Valeant”). Pursuant to the asset purchase agreement between the Company and Valeant (the “Valeant Agreement”), we sold all of our assets related to our Visudyne business, including the Qcellus laser then under development by us, for $112.5 million in upfront consideration (of which $7.5 million is held in escrow for one year from closing), contingent payments up to $20.0 million, and a royalty on net sales of new indications for Visudyne, if any should be approved. We will be entitled to the contingent payments upon the achievement of certain milestones, including: (i) $5.0 million upon receipt of the laser-related registration (the “Laser Registration”) required for commercial sale of the Qcellus laser in the United States by December 31, 2013, $2.5 million if the laser registration is obtained after December 31, 2013 but before January 1, 2015 and $0 if the laser registration is obtained thereafter and (ii) up to $5.0 million in each calendar year commencing January 1, 2013 (up to a maximum of $15.0 million in the aggregate) for annual net royalties exceeding $8.5 million received by Valeant under the license agreement with Novartis Pharma AG (“Novartis”), which we transferred to Valeant in connection with the sale, or from other third-party sales of Visudyne outside of the United States.

In connection with the sale of our Visudyne business, we entered into a transition services agreement with Valeant, pursuant to which we have been providing transition services to Valeant concerning most of the aspects of the Visudyne and Qcellus laser business. We have completed substantially all of our transition services with respect to Visudyne and the commercial sale of Visudyne, but we continue to assist Valeant with respect to obtaining FDA

approval of the Qcellus laser through the premarket approval process, including manufacturing prototype lasers for testing in connection with the approval process. Depending on when regulatory approval is received with respect to the lasers, we may manufacture for Valeant a limited quantity of lasers for a certain period of time post-approval. We expect to complete the laser-related transition services, including manufacturing any commercial lasers, in the third quarter of 2013.

Punctal Plug Delivery Program

On April 3, 2013, we completed the sale of our punctal plug drug delivery system technology (the “PPDS Technology”) to Mati Therapeutics Inc. (“Mati”), a development company founded by Robert Butchofsky, our former President and Chief Executive Officer. After a lengthy process of seeking a buyer for the PPDS Technology, on December 24, 2012, we granted Mati a 90-day exclusive option to acquire the PPDS Technology in exchange for $0.5 million. On April 3, 2013, following Mati’s exercise of the option, we entered into an asset purchase agreement with Mati and completed the sale of the PPDS Technology to Mati. Under the terms of the asset purchase agreement (the “Mati Agreement”), we received an additional payment of approximately $0.8 million at closing and are eligible to receive potential payments upon the satisfaction of certain product development and commercialization milestones that could reach $19.5 million (or exceed that amount if more than two products are commercialized), a low single digit royalty on world-wide net sales of all products using or developed from the PPDS Technology and a fee on payments received by Mati in respect of the PPDS Technology other than net sales.

Eligard

On October 1, 2009, we divested the Eligard line of products to TOLMAR Holding, Inc. (“Tolmar”) as part of the sale of all of the shares of our U.S. subsidiary, QLT USA, Inc. (“QLT USA”). Pursuant to the stock purchase agreement, we are entitled to future consideration payable quarterly in amounts equal to 80% of the royalties paid under the license agreement with Sanofi Synthelabo Inc. (“Sanofi”) for the commercial marketing of Eligard in the U.S. and Canada, and the license agreement with MediGene Aktiengesellschaft (“MediGene”), which, effective March 1, 2011, was assigned to Astellas Pharma Europe Ltd. (“Astellas”), for the commercial marketing of Eligard in Europe. The estimated fair value of the expected future quarterly payments is reflected as Contingent Consideration on our Consolidated Balance Sheet. We are entitled to these quarterly payments until the earlier of our receipt of $200.0 million or October 1, 2024. As of March 31, 2013, we had received an aggregate $134.1 million of contingent consideration. While we expect to receive the full amount of contingent consideration in the next two to three years, our continued receipt of contingent consideration under the stock purchase agreement is dependent upon sales of Eligard by Sanofi and Astellas, which could vary significantly due to competition, manufacturing difficulties and other factors. See “Item 1A. Risk Factors.”

Return of Capital

The Board has approved a special cash distribution to shareholders in the amount of $200.0 million, by way of a reduction of the paid-up capital of the common shares, resulting in the return of approximately $3.95 per share (the “Cash Distribution”). The Cash Distribution to shareholders will be made to shareholders without Canadian withholding taxes of up to 25% being payable, pursuant to an Advance Tax Ruling received from Canadian tax authorities.

When the Board commenced its review of the most tax efficient and effective means to return capital to shareholders, it initially authorized a return of $100.0 million in capital. In connection with this, on October 2, 2012, we commenced a normal course issuer bid to repurchase up to 3,438,683 of our common shares, being 10% of our public float as of September 26, 2012, the maximum amount permitted under the Toronto Stock Exchange normal course issuer bid rules. The share repurchase program was implemented pursuant to an automatic share purchase plan, in accordance with applicable Canadian and U.S. securities legislation. Total repurchases under the program which we completed in March 2013, were 3,438,683 common shares at an average price of $7.86 per share, for a total cost of $27.0 million. All purchases were effected in the open market through the facilities of the NASDAQ Stock Market, and in accordance with regulatory requirements. All common shares repurchased were cancelled.

Research and Development

Our research and development efforts are focussed on QLT091001, our orphan drug program for the treatment of inherited retinal diseases.

We are currently conducting Phase Ib clinical proof-of-concept studies of QLT091001, a synthetic retinoid replacement therapy for 11-cis-retinal, a key biochemical component of the visual retinoid cycle, in patients with Leber Congenital Amaurosis (“LCA”) and Retinitis Pigmentosa (“RP”). Positive preliminary results from our initial Phase Ib clinical proof-of-concept study were reported for the 14 subject cohort of LCA patients in 2011 and for the 17 subject cohort of early-onset RP patients in March 2012. This study is now completed and we are in the process of preparing the final study report.

A retreatment study in LCA and RP subjects is ongoing to provide retreatment for these subjects, as needed, in order to examine the safety, efficacy and tolerability of repeat dosing cycles of QLT091001 administered over seven days. Studies are also ongoing to further evaluate the safety and tolerability of QLT091001. Our clinical team, led by Dr. Sushanta Mallick, continues to further evaluate current study designs, dose ranging and safety of the drug. We are also continuing our dialogue with the U.S. Food and Drug Administration (“FDA”) and the European Medicines Agency (“EMA”) with respect to the design and protocol requirements for potential pivotal trials in LCA and RP patients.

QLT091001 has received orphan drug designations for the treatment of LCA (due to inherited mutations in the LRAT and RPE65 genes) and RP (all mutations) by the FDA, and for the treatment of LCA and RP (all mutations) by the EMA. The drug has also been granted two Fast Track designations by the FDA for the treatment of LCA and RP due to inherited mutations in the LRAT and RPE65 genes. In May 2011, the United States Patent and Trademark Office issued Patent No. 7,951,841, a key patent related to this program, covering various methods of use of QLT091001 in the treatment of diseases associated with an endogenous 11-cis-retinal deficiency, expiring on July 27, 2027, including the period of Patent Term Adjustment.

RESULTS OF OPERATIONS

The following table sets out our net loss from operations for the three months ended March 31, 2013 and 2012.


	Three months ended March 31,
(In thousands of U.S. dollars, except per share data)	2013			2012
Net loss	$	(6,427	)	$	(10,277	)
Basic and diluted net loss per common share	$	(0.13	)	$	(0.21	)

Detailed discussion and analysis of our results of operations are as follows:

Costs and Expenses

Research and Development

Research and development, or R&D, expenditures all relate to our synthetic retinoid program and decreased 37.4% to $4.1 million for the three months ended March 31, 2013, compared to $6.5 million for the same period in 2012. The decrease was primarily due to lower spending on the program and savings from a reduction in our workforce resulting from our restructuring.

Selling, General and Administrative Expenses

For the three months ended March 31, 2013, selling, general and administrative, or SG&A, expenses decreased 49.3% to $2.1 million compared to $4.1 million for the three months ended March 31, 2012. The decrease was primarily due to savings from a reduction in our workforce resulting from our restructuring.

Restructuring Charges

During the year ended December 31, 2012, we restructured our operations in order to concentrate our resources on our clinical development programs related to our synthetic retinoid, QLT091001, for the treatment of certain inherited retinal diseases. Following the sale of Visudyne to Valeant, we further reduced our workforce to better align the Company’s resources with our corporate objectives. We provided or will provide approximately 178 affected

employees with severance and support to assist with outplacement. During the three months ended March 31, 2013, we recorded further restructuring charges of $0.8 million. Annualized operating savings as a result of the restructuring are expected to be approximately $24.6 million related to the reduction in force and approximately $0.6 million related to depreciation on assets written-down or held for sale. See Note 5 – Restructuring Charge in Notes to the Unaudited Condensed Consolidated Financial Statements.

Investment and Other Income

Net Foreign Exchange Gains (Losses)

For the three months ended March 31, 2013 and 2012, net foreign exchange gains (losses) comprised gains and losses from the impact of foreign exchange fluctuations on our monetary assets and liabilities that are denominated in currencies other than the U.S. dollar (principally the Canadian dollar). See Liquidity and Capital Resources – Interest and Foreign Exchange Rates below.

Fair Value Change in Contingent Consideration

As part of the sale of all of the shares of QLT USA to Tolmar, we are entitled to receive up to $200.0 million in consideration payable on a quarterly basis in amounts equal to 80% of the royalties paid under the license agreements with each of Sanofi and Astellas (formerly with MediGene) for the commercial marketing of Eligard in the U.S., Canada, and Europe. At March 31, 2013, there was $65.9 million remaining to be paid to us by Tolmar. The fair value of this amount, $61.6 million, is reported as part of Contingent Consideration on our Consolidated Balance Sheet, and is estimated using a discounted cash flow model.

On September 24, 2012, we completed the sale of our Visudyne business to Valeant pursuant to the Valeant Agreement. Under the terms of the Valeant Agreement, we received a payment of $112.5 million at closing (including $7.5 million held in an escrow account for one year) and are also eligible to receive additional amounts of up to $5.0 million in contingent payments relating to the Laser Registration, up to $15.0 million in contingent payments relating to royalties on sales of Visudyne under the Novartis Agreement or from other third party sales of Visudyne outside of the U.S. and a royalty on net sales of new indications for Visudyne, if any should be approved. The fair value of these amounts, $4.7 million, is reported as part of Contingent Consideration on our Consolidated Balance Sheet, and is estimated using a discounted cash flow model.

Contingent consideration is revalued at each reporting period and is positively impacted each period by the passage of time, since all remaining expected cash flows move closer to collection, thereby increasing their present value. The fair value change in contingent consideration is also impacted by the projected amount and timing of expected future cash flows and by the cost of capital used to discount these cash flows.

For the three months ended March 31, 2013, the fair value change in contingent consideration decreased by $1.2 million to $0.8 million compared to $1.9 million for the same period in 2012. The decrease occurred primarily because the fair value change diminishes each period as the outstanding balance owed to us decreases.

Income from Discontinued Operations

As a result of our comprehensive business and portfolio review in July 2012, we announced a new corporate strategy and plans to restructure our operations in order to concentrate our resources on our clinical development programs related to our synthetic retinoid, QLT091001, for the treatment of certain inherited retinal diseases. In connection with this strategic restructuring of the Company, we engaged a financial advisor to determine whether to divest our business related to our commercial product, Visudyne^® and to explore the sale of our punctal plug drug delivery system technology. On September 24, 2012, we completed the sale of our Visudyne business to Valeant pursuant to the Valeant Agreement. On December 24, 2012, we entered into an exclusive option agreement with Mati Therapeutics Inc. (“Mati”), under which we granted Mati a 90-day option to acquire assets related to our PPDS Technology in exchange for $0.5 million. On April 3, 2013, following Mati’s exercise of the option, we completed the sale of our PPDS Technology to Mati pursuant to the Mati Agreement.

The results of operations relating to both our PPDS Technology and our Visudyne business have been excluded from continuing operations and reported as discontinued operations for all periods presented. See Note 8 – Discontinued Operations and Assets Held for Sale and Note 10 – Subsequent Events in Notes to the Unaudited Condensed Consolidated Financial Statements.

Income Taxes

The provision for income taxes for the three months ended March 31, 2013 and March 31, 2012 of $0.2 million and $0.3 million respectively, related primarily to the current period gain on the fair value change of our Eligard related contingent consideration and reflected that insufficient evidence existed to support current or future realization of the tax benefits associated with our development expenditures.

The provision for income taxes on discontinued operations for the three months ended March 31, 2013 and 2012 of $0.1 million each, was inconsequential and reflected that insufficient evidence existed to support current or future realization of the tax benefits associated with expenditures related to our discontinued operations.

The net deferred tax asset of $0.8 million as of March 31, 2013 was largely the result of contingent consideration, and other temporary differences against which a valuation allowance was not applied.

As of March 31, 2013, we had a valuation allowance against specifically identified tax assets. The valuation allowance is reviewed periodically and if management’s assessment of the “more likely than not” criterion for accounting purposes changes, the valuation allowance is adjusted accordingly.

LIQUIDITY AND CAPITAL RESOURCES

General

Over the next two years, we expect our cash resources and working capital, cash from divestitures, cash from the collection of the contingent consideration, and other available financing resources to be sufficient to fund current product research and development, operating requirements, liability requirements, milestone payments, restructuring and change in control payments related to changes in corporate strategy, and return of capital to shareholders, including repurchases of our common shares.

If adequate capital is not available, our business could be materially and adversely affected. Factors that may affect our future capital availability or requirements include: return of capital to shareholders beyond the proposed Cash Distribution, including future share repurchases; the status of competitors and their intellectual property rights; levels of future sales of Eligard and our receipt of contingent consideration under the QLT USA stock purchase agreement with Tolmar; levels of future sales of Visudyne and receipt of contingent consideration under the asset purchase agreement with Valeant; the progress of our R&D programs, including preclinical and clinical testing; the timing and cost of obtaining regulatory approvals; the levels of resources that we devote to the development of manufacturing and other support capabilities; technological advances; the cost of filing, prosecuting and enforcing our patent claims and other intellectual property rights; pre-launch costs related to commercializing our products in development; acquisition and licensing activities; milestone payments and receipts; and our ability to establish collaborative arrangements with other organizations.

Sources and Uses of Cash

We finance operations, product development and capital expenditures primarily through existing cash, contingent consideration from previous sales of assets and interest income.

For the three months ended March 31, 2013, we used $9.3 million of cash in operations as compared to $11.7 million for the same period in 2012. The $2.4 million positive cash flow variance was primarily attributable to:

•

A positive operating cash flow variance from lower operating and no inventory related expenditures of $12.4 million;

•

A negative operating cash flow variance from lower cash receipts from product sales and royalties of $8.1 million;

•

A negative cash flow variance from higher restructuring costs of $0.9 million; and

•

A negative operating cash flow variance from lower other income of $1.0 million.

During the three months ended March 31, 2013, cash flows provided by investing activities consisted of proceeds on collection of contingent consideration of $9.6 million and proceeds from the sale of property, plant and equipment of 0.2 million.

For the three months ended March 31, 2013, cash flows used by financing activities consisted primarily of common shares repurchased for $14.1 million, including share repurchase costs, offset by $4.8 million received for the issuance of common shares related to the exercise of stock options.

Interest and Foreign Exchange Rates

We are exposed to market risk related to changes in interest and foreign currency exchange rates, each of which could adversely affect the value of our current assets and liabilities. At March 31, 2013, we had $298.3 million in cash and cash equivalents and our cash equivalents had an average remaining maturity of approximately 19 days. If market interest rates were to increase immediately and uniformly by one hundred basis points from levels at March 31, 2013, the fair value of the cash equivalents would decline by an immaterial amount due to the short remaining maturity period.

The functional currency of QLT Inc. and its U.S. subsidiaries is the U.S. dollar, therefore our U.S. dollar-denominated cash and cash equivalents holdings do not result in foreign currency gains or losses in operations. To the extent that QLT Inc. holds a portion of its monetary assets and liabilities in Canadian dollars, we are subject to translation gains and losses. These translation gains and losses are included in operations for the period.

At March 31, 2013, we had no outstanding forward foreign currency contracts.

Contractual Obligations

Our material contractual obligations as of March 31, 2013 comprised our clinical and development agreements. Since 2008, we have had an operating lease commitment under our five year lease with Discovery Parks Holdings Ltd., an affiliate of Discovery Parks Trust, for approximately 67,000 square feet of office and laboratory space in Vancouver, British Columbia, Canada. On March 1, 2013, we entered into an amendment to our lease to extend the term for an additional two years commencing September 1, 2013 and reduced the leased space to approximately 20,000 square feet. We also have operating lease commitments for office space in the U.S. and for office equipment and vehicles. Details of these contractual obligations are described in our 2012 Annual Report.

Off-Balance Sheet Arrangements

In connection with the sale of assets and businesses, we provide indemnities with respect to certain matters, including product liability, patent infringement, and contractual breaches and misrepresentations, and we provide other indemnities to parties under the clinical trial, license, service, manufacturing, supply and other agreements that we enter into in the normal course of our business. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnities are generally subject to threshold amounts, specified claims periods and other restrictions and limitations.

Except as described above and the contractual arrangements described in the Contractual Obligations section above, we do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Outstanding Share Data

As of April 29, 2013, there were 50,539,500 common shares issued and outstanding for a total of $461.4 million in share capital. As of April 29, 2013, we had 668,856 stock options outstanding under the QLT 2000 Incentive Stock Option Plan (of which 565,444 were exercisable) at a weighted average exercise price of CAD $6.65 per share. Each stock option is exercisable for one common share.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

fair value of contingent consideration, allocation of overhead expenses to research and development, stock-based compensation, and provisions for taxes, tax assets and liabilities. Actual results may differ from estimates made by management. Please refer to our Critical Accounting Policies and Estimates included as part of our 2012 Annual Report.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward looking information” within the meaning of the Canadian securities legislation which are based on our current expectations and projections. Words such as “anticipate,” “project,” “potential,” “goal,” “believe,” “expect,” “forecast,” “outlook,” “plan,” “intend,” “estimate,” “should,” “may,” “assume,” “continue” and variations of such words or similar expressions are intended to identify our forward-looking statements and forward-looking information. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of QLT to be materially different from the results of operations or plans expressed or implied by such forward-looking statements and forward-looking information. Many such risks, uncertainties and other factors are taken into account as part of our assumptions underlying the forward-looking statements and forward-looking information.

The following factors, among others, including those described under Item 1A. Risk Factors in Part II of this Quarterly Report could cause our future results to differ materially from those expressed in the forward-looking statements and forward-looking information:

•

our expectations regarding the results of our strategic restructuring;

•

unanticipated negative effects of our strategic restructuring;

•

our expectations regarding the timing and our ability to return capital, including by way of a reduction in the paid-up capital of the common shares;

•

our ability to maintain adequate internal controls over financial reporting;

•

our ability to retain or attract key employees, including a new Chief Executive Officer;

•

the anticipated timing, cost and progress of the development of our technology and clinical trials;

•

the anticipated timing of regulatory submissions for product candidates;

•

the anticipated timing for receipt of, and our ability to maintain, regulatory approvals for product candidates;

•

our ability to successfully develop and commercialize our synthetic retinoid program;

•

existing governmental laws and regulations and changes in, or the failure to comply with, governmental laws and regulations;

•

the scope, validity and enforceability of our and third party intellectual property rights;

•

the anticipated timing for receipt of, and our ability to maintain, orphan drug designations for our product candidates, particularly our synthetic retinoid;

•

receipt of all or part of the contingent consideration pursuant to the stock purchase agreement entered into with Tolmar, which is based on anticipated levels of future sales of Eligard;

•

receipt of all or part of the contingent consideration pursuant to the Valeant Agreement, which is based on future sales of Visudyne outside of the United States, sales attributable to any new indications for Visudyne and the receipt of regulatory approval of the Qcellus laser, which is currently under development;

•

receipt of all or part of the contingent consideration pursuant to the asset purchase agreement with Mati based on Mati’s successful development and sales of products based on our PPDS Technology;

•

our ability to effectively market and sell any future products;

•

our ability to perform our obligations under the Visudyne Transition Services Agreement with Valeant;

•

changes in estimates of prior years’ tax items and results of tax audits by tax authorities; and

•

unanticipated future operating results.

Although we believe that the assumptions underlying the forward-looking statements and forward-looking information contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements and information included in this Quarterly Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements and forward-looking information included herein, the inclusion of such statements and information should not be regarded as a representation by us or any other person that the results or conditions described in such statements and information or our objectives and plans will be achieved. Any forward-looking statement and forward-looking information speaks only as of the date on which it is made. Except to fulfill our obligations under the applicable securities laws, we undertake no obligation to update any such statement or information to reflect events or circumstances occurring after the date on which it is made.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources in this Quarterly Report as well as Item 7A. Quantitative and Qualitative Disclosures about Market Risk of our 2012 Annual Report.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in filings made pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified and in accordance with the SEC’s rules and forms and is accumulated and communicated to management, including the Board’s Executive Transition Committee, which functions as our principal executive officer, and our Chief Financial Officer. Our Executive Transition Committee and our Chief Financial Officer have evaluated our disclosure controls and procedures as of the end of the period covered by this Quarterly Report and concluded that our disclosure controls and procedures were effective in timely alerting them to material information required to be included in our periodic SEC reports.

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, our Transition Committee (functioning as our principal executive officer) and Chief Financial Officer have concluded that our disclosure controls and procedures are effective under circumstances where our disclosure controls and procedures should reasonably be expected to operate effectively.

Changes in Internal Control over Financial Reporting

Our internal control over financial reporting is designed with the objective of providing reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

No change was made to our internal controls over financial reporting during the fiscal quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, such internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

There are currently no material pending legal proceedings. For information regarding litigation and other risks, uncertainties and other factors that may materially and adversely affect our business, products, financial condition and operating results, refer to Item 1A. Risk Factors in this Quarterly Report.

ITEM 1A.

RISK FACTORS

Other than the amendment and restatement of the risk factors below concerning our strategic restructuring, our anticipated revenues and available funds, potential litigation and the volatility of our stock price, management believes that there have been no material changes to the Company’s risk factors as reported in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012.

The risks described below and in our 2012 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem not to be material also may materially adversely affect our business, products, financial condition and operating results.

We may be unable to realize all of the potential benefits, and may be subject to potential liabilities, in connection with our recent strategic restructuring.

In September 2012, we sold all of our assets related to Visudyne to Valeant and in April 2013, we sold all of our assets related to our PPDS Technology to Mati. In each case, a portion of the consideration payable to us is contingent upon the achievement of certain milestones and upon sales of Visudyne and products using or developed from the punctal plug delivery system technology, respectively. We may not receive all or any of the contingent consideration under the Visudyne asset purchase agreement if we fail to achieve milestones with respect to the Qcellus laser or if net royalties on sales of Visudyne outside of the U.S. are lower than expected. Likewise, we may not receive all or any of the contingent consideration under the Mati asset purchase agreement if the product development and commercialization milestones are not met or if no products use or are developed from the punctal plug delivery system technology, or if sales of such products are lower than expected.

Our strategic restructuring may not result in anticipated savings, could result in total costs and expenses that are greater than expected, could make it more difficult to attract and retain qualified personnel and may disrupt our operations, each of which could have a material adverse effect on our business.

In connection with the Company’s strategic restructuring, in July 2012 we implemented a significant reduction in our work force, followed by an additional reduction in force in December 2012. Through March 31, 2013, we recorded restructuring charges of $17.8 million (of which $3.1 million is included in discontinued operations) and we expect to record an additional restructuring charge of approximately $0.8 million. We may not realize in full the anticipated benefits, savings and improvements in our cost structure from our restructuring efforts due to unforeseen difficulties, delays or unexpected costs. If we are unable to achieve the anticipated benefits, savings or improvements in our cost structure in the expected time frame or other unforeseen events occur, our business and results of operations may be adversely affected.

The Company’s restructuring, including product divestitures, also may be disruptive to our operations, in particular due to the departure of several members of senior management. For example, cost saving measures may distract remaining and new management from our remaining businesses, harm our reputation, or yield unanticipated consequences, such as attrition beyond planned reductions in workforce, increased difficulties in our day-to-day operations, deficiencies in our internal controls, reduced employee productivity and a deterioration of employee morale. Our workforce reductions could also harm our ability to attract and retain qualified management, and scientific and other personnel who are critical to our business. Any failure to attract or retain key personnel, including a permanent CEO, could result in unexpected delays in the development of the Company’s synthetic oral retinoid program, QLT091001, or could otherwise negatively impact our business.

Moreover, although we believe it is necessary to reduce the cost of our operations to improve our performance, these initiatives may preclude us from taking actions or making investments that could improve our competitiveness over the longer term. We cannot guarantee that the cost reduction measures, or other measures we may take in the future, will result in the expected cost savings, or that any cost savings will be unaccompanied by these or other unintended consequences.

We no longer generate revenues from continuing operations and continue to incur operating expenses. In order to fund our operations, we may need additional capital in the future, and our prospects for obtaining it are uncertain.

Although our divestment of non-core assets in 2008 and 2009 and our sale of the assets related to Visudyne in September 2012 and our assets related to our PPDS Technology in April 2013 generated significant cash, we no longer generate revenues from the sale of products and we will not generate any revenues from our products in development until such time, if ever, that they are approved for sale. In addition, we have announced, subject to shareholder approval, a special cash distribution to our shareholders in the amount of $200.0 million, by way of a reduction of paid-up capital of the Company’s shares. Going forward we will continue to incur operating expenses and, as a result, may not be able fund our operations or any anticipated growth beyond the near term. Insufficient funds may require us to delay, scale back, or eliminate some or all of our activities or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose, and, if we are unable to obtain additional funding, may adversely affect our ability to operate as a going concern. The amount required to fund our operating expenses will depend on many factors, including the success of our research and development programs, the extent and success of any collaborative research arrangements, and the results of product, technology or other acquisitions or business combinations. We could seek additional funds in the future from a combination of sources, including out-licensing, joint development, sale of assets and other financing arrangements. In addition, we may issue debt or equity securities if we determine that additional cash resources could be obtained under favorable conditions or if future development funding requirements cannot be satisfied with available cash resources. The availability of financing will depend on a variety of factors such as market conditions, the general availability of credit and the availability of credit to our industry, the volume of trading activities, our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of our long-term or short-term financial prospects if we incur large investment losses or if the level of our business activity decreases due to a market downturn. Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital required to operate our business. As a result of any or all of these factors, we may not be able to successfully obtain additional financing on favourable terms, or at all.

Our primary source of cash inflows is contingent consideration related to the sale of our Visudyne business, the sale of our PPDS Technology and the sale of QLT USA, including the Eligard product line, and we may not receive all or a material portion of these funds. Furthermore, an unfavorable change in the fair value of our contingent consideration as a result of changes in estimates related to amount and timing of future cash flows, and the applicable discount rate may adversely impact our financial results.

For the foreseeable future, our only material source of cash inflows is contingent consideration from the strategic transactions we have completed or may complete.

Under our asset purchase agreement with Valeant pursuant to which we sold our Visudyne business to Valeant, we are entitled to receive up to $5.0 million in each calendar year commencing January 1, 2013 (up to a maximum of $15.0 million in the aggregate) for annual net royalties exceeding $8.5 million for sales of Visudyne outside of the United States by Novartis and a royalty on net sales attributable to new indications for Visudyne, if any should be approved by the FDA. Additionally, we are entitled to receive up to $5.0 million upon receipt of all registrations required for the commercial sale in the U.S. of the Qcellus laser, which is currently under development. We may not receive all or any of this contingent consideration.

Under our asset purchase agreement with Mati, we are eligible to receive potential payments upon the satisfaction of certain product development and commercialization milestones that could reach $19.5 million (or exceed that amount if more than two products are commercialized), a low single digit royalty on world-wide net sales of all products using or developed from the PPDS Technology and a fee on payments received by Mati in respect of the PPDS Technology other than net sales.

Under the stock purchase agreement with Tolmar for the sale of QLT USA, including its Eligard product line, we are entitled to receive future consideration payable on a quarterly basis in amounts equal to 80% of the royalties paid under the license agreement with Sanofi for the commercial marketing of Eligard in the U.S. and Canada, and the license agreement with Astellas (formerly with MediGene) for the commercial marketing of Eligard in Europe until the earlier of receiving the full $200.0 million or October 1, 2024.

With respect to both Visudyne and Eligard, as well as any future products resulting from the PPDS Technology, our success depends on the success of third parties to market these products. For example, under the Visudyne asset purchase agreement, the contingent consideration depends on the sales of Visudyne outside of the United States, which

is the responsibility of Novartis. Consequently, a portion of our income depends on the efforts of Novartis to market and sell Visudyne outside the U.S. and on the efforts of Valeant to collect royalties due to it from Novartis. To the extent such third parties do not perform adequately, or do not comply with applicable laws or regulations in performing their obligations, our income may be adversely affected.

Our receipt of contingent consideration may also be adversely affected by, among other things:

•

lower than expected Visudyne or Eligard sales;

•

product manufacturing or supply interruptions or recalls;

•

the development of competitive products, including generics, by other companies that compete with Visudyne or Eligard;

•

marketing or pricing actions by competitors or regulatory authorities;

•

changes in foreign exchange rates;

•

changes in the reimbursement or substitution policies of third-party payors;

•

changes in or withdrawal of regulatory approvals;

•

disputes relating to patents or other intellectual property rights;

•

the commercial efforts of Visudyne or Eligard marketing licensees;

•

changes in laws or regulations that adversely affect the ability to market Visudyne or Eligard;

•

decline in the commercial supply and technical support for laser light devices necessary to administer Visudyne therapy;

•

failure or delay in obtaining regulatory approval for the sale of the Qcellus laser;

•

failure to develop and commercialize any new indications for Visudyne; and

•

failure or delay by Mati in obtaining regulatory approval and commercializing the products related to the PPDS Technology.

Furthermore, the fair value of our contingent consideration reflected on our consolidated balance sheet is based on future Visudyne and Eligard sales estimated by us utilizing external market research to estimate market size, to which we apply market share and pricing assumptions based on historical sales data and expected future competition. If we do not ultimately receive all or a material portion of the consideration provided for under the stock purchase agreement or asset purchase agreement due to the risks noted above or for any other reason, our cash position will suffer.

We may become involved in legal proceedings from time to time and if there is an adverse outcome in our litigation or other legal actions, our business may be harmed.

We may become involved in legal actions in the ordinary course of our business. Litigation may result in verdicts against us, including excessive verdicts, which may include a judgment with a significant monetary award, as occurred in 2008 in the litigation with Massachusetts Eye and Ear Infirmary, including the possibility of punitive damages, a judgment that certain of our patent or other intellectual property rights are invalid or unenforceable and, as occurred in 2006 in the litigation with TAP Pharmaceuticals in the U.S., the risk that an injunction could be issued preventing the manufacture, marketing and sale of our products that are the subject of the litigation.

In addition, we may become involved in disputes or legal actions as a result of our past strategic corporate restructurings. Under the strategic restructuring undertaken in 2008 and 2009, we divested Eligard (as part of the sale of QLT USA), Aczone^® and Atrigel and sold the land and building comprising our Canadian headquarters. Additionally, we sold all of our assets related to Visudyne to Valeant pursuant to the terms of an asset purchase agreement, and we agreed to perform certain transition services for Valeant. Most recently, we entered into an asset purchase agreement in April 2013 with Mati pursuant to which we sold our PPDS Technology to Mati. Transactions such as these may result in disputes regarding representations and warranties, indemnities, future payments or other matters, and we may not realize some or all of the anticipated benefits of these transactions. For example, $7.5 million of the purchase price under the Visudyne asset purchase agreement will be held in escrow for one year following the closing date to satisfy indemnification claims that Valeant may have under the asset purchase agreement. If Valeant makes a claim for indemnification within that time period and that claim is successful, some or all of this portion of the purchase price may not be released to us.

If disputes are resolved unfavorably, our financial condition and results of operations may be adversely affected. Additionally, any litigation, whether or not successful, may damage our reputation. Furthermore, we will have to incur substantial expense in defending these lawsuits and the time demands of such lawsuits could divert management’s attention from ongoing business concerns and interfere with our normal operations.

In addition, the testing, manufacturing, marketing and sale of human pharmaceutical products entail significant inherent risks of allegations of product liability. Our use of such products and medical devices in clinical trials exposes us to liability claims allegedly resulting from the use of these products or devices. These risks exist even with respect to those products or devices that are approved for commercial sale by the FDA or applicable foreign regulatory authorities and manufactured in facilities licensed and regulated by those regulatory authorities.

Our current insurance may not provide coverage or adequate coverage against potential claims, losses or damages resulting from such litigation. We also cannot be certain that our current coverage will continue to be available in the future on reasonable terms, if at all. If we were found liable for any claims in excess of our coverage or outside of our coverage, the cost and expense of such liability could materially harm our business and financial condition.

The market price of our common shares is volatile and the value of an investment in our common shares could decline.

The market prices for securities of biotechnology companies, including QLT, have been and are likely to continue to be volatile. As a result, investors in companies such as ours often buy at high prices only to see the price drop substantially a short time later, resulting in an extreme drop in value in the holdings of these investors. Trading prices of the securities of many biotechnology companies, including us, have experienced extreme price and volume fluctuations which have, at times, been unrelated to the operating performance of the companies whose securities were affected. Some of the factors that may cause volatility in the price of our securities include:

•

making our proposed $200.0 million cash distribution to shareholders;

•

results of our research and development programs;

•

issues with the safety or effectiveness of our product candidates;

•

announcements related to our strategic restructuring, including a strategic transaction involving our PPDS Technology or return of capital to shareholders;

•

announcements of technological innovations or new products by us or our competitors;

•

litigation commenced against us;

•

regulatory developments or delays concerning our products;

•

quarterly variations in our financial results; and

•

the timing and amounts of contingent consideration paid to us by third parties.

The price of our common shares may also be adversely affected by the estimates and projections of the investment community, general economic and market conditions, and the cost of operations in our product markets. Due to general economic conditions and the recent worldwide economic downturn, extreme price and volume fluctuations occur in the stock market from time to time that can particularly affect the prices of biotechnology companies. These extreme fluctuations are sometimes unrelated or disproportionate to the actual performance of the affected companies.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On October 2, 2012, we commenced a normal course issuer bid to repurchase up to 3,438,683 of our common shares, being 10% of our public float as of September 26, 2012, over a 12-month period. The share repurchase program was implemented pursuant to an automatic share purchase plan, in accordance with applicable Canadian and U.S. securities legislation. Under the Plan, we were able to repurchase our shares on any trading day during the share repurchase period, including during self-imposed trading blackout periods. All purchases were effected in the open market through the facilities of the NASDAQ Stock Market, and in accordance with regulatory requirements. All common shares repurchased were cancelled. Total purchases under this program that was completed in March 2013, were 3,438,683 common shares at an average price of $7.86 per share, for a total cost of $27.0 million.

The following table sets forth information regarding our purchases of common shares on a monthly basis during the three months ended March 31, 2013:

ISSUER PURCHASES OF EQUITY SECURITIES


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾
January 1, 2013 through January 31, 2013		1,225,371	$	7.95		1,225,371		466,108
February 1, 2013 through February 28, 2013		310,256	$	7.96		310,256		155,852
March 1, 2013 through March 31, 2013		155,852	$	7.98		155,852		—

Total		1,691,479	$	7.96		1,691,479

⁽¹⁾	All shares were purchased pursuant to our normal course issuer bid to repurchase up to 3,438,683 of our common shares, discussed above, commenced on October 2, 2012 and was completed on March 12, 2013.

ITEM 6. EXHIBITS

The exhibits filed or furnished with this Quarterly Report are set forth in the Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX


Exhibit Number		Description

10.69		Letter Agreement between the Company and Sukhi Jagpal, dated as of February 27, 2013 (incorporated by reference to Exhibit 10.69 to the Company’s Current Report on Form 8-K filed on March 5, 2013).

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.

101.		The following financial statements from the QLT Inc. Quarterly Report on Form 10Q for the quarter ended March 31, 2013, formatted in Extensible Business Reporting Language (“XBRL”):

•

unaudited condensed consolidated balance sheets;

•

unaudited condensed consolidated statements of operations;

•

unaudited condensed consolidated statements of comprehensive loss;

•

unaudited condensed consolidated statements of cash flows;

•

unaudited condensed consolidated statements of changes in shareholders’ equity; and

•

notes to unaudited condensed consolidated financial statements.

Large accelerated filer

Accelerated filer

Non-accelerated filer

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Smaller reporting company