Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (11-10-08 04:58 AM)

Filed with the SEC from Oct 23 to Oct 29:

QLT (QLTI)
West Coast Asset Management said that it may approach QLT about taking the Vancouver biopharmaceutical maker private or merging it with another company. West Coast Asset reported holding 5.6 million shares (7.5%).

BUSINESS OVERVIEW

BUSINESS
Overview
We are a global biopharmaceutical company with two commercial products, Visudyne ® and Eligard ® , which were derived from our two unique technology platforms, photodynamic therapy and Atrigel ® . Our research and development efforts are focused on pharmaceutical products in the fields of ophthalmology and dermatology. Since our acquisition of ForSight Newco II, Inc. (now QLT Plug Delivery, Inc.) on October 18, 2007, we are also developing an ocular punctal plug drug delivery system.
QLT was formed in 1981 under the laws of the Province of British Columbia, Canada. Our first commercial product was in the field of photodynamic therapy, or “PDT,” which uses photosensitizers (light activated drugs) in the treatment of disease. Our commercial product, Visudyne, utilizes PDT to treat the eye disease known as wet age related macular degeneration, or “wet AMD,” the leading cause of blindness in people over the age of 55 in North America and Europe.
Visudyne is commercially available in more than 75 countries, including the U.S., Canada, Japan and the European Union, or “EU,” countries, for the treatment of a form of wet AMD known as predominantly classic subfoveal choroidal neovascularization, or “CNV.”
Visudyne is also approved for the treatment of the form of wet AMD known as occult subfoveal CNV, “occult AMD,” in certain countries. During 2007, health authorities in the EU removed occult AMD from the officially approved indications. This change is applicable to all EU member countries. Although we expect Visudyne European sales to decline as a result, the degree of decline should vary by country as the occult indication was not universally reimbursed across Europe previously, despite regulatory approval, and may also depend on potential market adoption of Visudyne following clinical trial results studying the use of Visudyne in combination with other compounds.
Visudyne is reimbursed in the U.S. by the Centers for Medicare & Medicaid Services for certain patients with the occult and minimally classic forms of wet AMD. Visudyne is also approved in more than 60 countries, including the U.S., Canada and the EU countries, for the treatment of subfoveal CNV due to pathologic myopia (severe near-sightedness). In some countries, including the U.S. and Canada, Visudyne is also approved for presumed ocular histoplasmosis or other macular diseases. Visudyne was co-developed by QLT and Novartis Pharma AG of Switzerland (“Novartis”) and is manufactured by QLT and sold by Novartis under the terms of a co-development, manufacturing and commercialization agreement with Novartis.
In addition to Visudyne, we market (through commercial licensees) the Eligard line of products for the treatment of prostate cancer. The Eligard product line includes four different commercial formulations of our Atrigel ® technology combined with leuprolide acetate for the treatment of prostate cancer. The FDA has approved all four products: Eligard 7.5-mg (one-month), Eligard 22.5-mg (three-month), Eligard 30.0-mg (four-month) and Eligard 45.0-mg (six-month). The Eligard 7.5-mg (one-month) and Eligard 22.5-mg (three-month) products are also approved in a number of other countries, including 26 European countries, Canada, Australia, New Zealand, India, Korea and a number of Latin American countries. In addition to the U.S., Eligard 30-mg (four-month) is approved in Canada, Australia, New Zealand, Korea and India while Eligard 45.0-mg (six-month) is approved in 27 European countries, Canada, Australia and India.
Our most advanced proprietary dermatology product, Aczone™, was approved by the FDA in July 2005 and by Health Canada in June 2006. Although Aczone is approved in the U.S. and Canada, it is not yet marketed. Based on a post-approval commitment requested by the FDA, we conducted a Phase IV clinical trial of Aczone™ in more than 50 patients with glucose-6-phosphate dehydrogenase, or “G6PD,” deficiency and communicated the positive outcome of this study in November 2006. A label revision supplement was submitted to the FDA during the second quarter of 2007 and in July 2007 it was accepted by the FDA for filing and review. A decision by the FDA on the label revision is expected by March 23, 2008, the Prescription Drug User Fee Act (PDUFA) date, but may be later if the FDA does not meet or extends the PDUFA date.
Strategic Corporate Restructure
On November 28, 2007, we announced the formation of a Special Committee of the Board of Directors, comprised

of three independent Directors, to review all strategic alternatives available to the Company. The Special Committee has been charged with the responsibility for exploring alternative ways to maximize shareholder value, including transactions involving the sale of all or part of the assets of the Company. The Board of Directors engaged Goldman, Sachs & Co. (“Goldman Sachs”), a global investment bank, as its financial advisor to assist with identifying, evaluating and pursuing alternative strategies. On January 16, 2008, we announced that following a comprehensive business and portfolio review, the Board of Directors decided to implement initial steps in the Company’s strategic restructure designed to enhance shareholder value. These initiatives include:
• the sale of QLT USA, Inc. (“QLT USA”), our wholly owned U.S. subsidiary, whose primary assets include the Eligard product line for prostate cancer, Aczone, a dermatology product for the treatment of acne vulgaris, and the Atrigel drug delivery system, either in a single transaction or a series of transactions;
• the sale of the land and building associated with and surrounding our corporate head office in Vancouver; and
• the reduction in headcount of 115 employees with planned future reductions as assets are divested.
On January 18, 2008 we implemented the reduction in head count that affected 115 people (or approximately 45%) at our Vancouver headquarters and our U.S. subsidiaries, including several members of senior management. The majority of the affected employees will have left the company by March 31, 2008.
The plan to pursue a sale of the assets described above is part of a significant strategic change pursuant to which our initial plan is to focus our ongoing business primarily on our Visudyne product and our clinical development programs related to our punctal plug delivery technology and our photodynamic therapy dermatology technology (Lemuteporfin — QLT0074). The goal of maximizing shareholder value will be the key driver in any decisions we make regarding specific deal structures or transactions into which we may enter. We can provide no assurances that we will be able to negotiate the sale of these assets on terms acceptable to us or at all or that we will pursue any particular transaction structure. Goldman Sachs will assist us as we review and evaluate transaction proposals that we may receive.

Our Approved Products
Visudyne ®
Visudyne is a photosensitizer which we developed with Novartis for the treatment of CNV due to wet AMD, the leading cause of severe vision loss in people over the age of 55 in North America and Europe. We have been co-developing Visudyne with Novartis since 1995 pursuant to a product co-development, manufacturing and distribution agreement. Under that agreement, we are responsible for manufacturing and product supply and Novartis is responsible for marketing and distribution.
About Wet AMD
Wet AMD is an eye disease characterized by the growth of abnormal blood vessels under the central part of the retina, called the macula. Because these vessels do not mature properly in the elderly, they begin to leak and, over time, cause photoreceptor damage that results in the formation of scar tissue and a loss of central vision. Although the progression of the disease varies by patient, the majority of patients with wet AMD become legally blind in the affected eye within approximately two years following the onset of the disease. Based upon proprietary market research, we estimate that worldwide approximately 500,000 new cases of wet AMD develop annually, of which approximately 200,000 develop in North America, approximately 200,000 develop in Europe and approximately 100,000 develop in the remainder of the world.
There are three forms of wet AMD: predominantly classic, minimally classic and occult. These forms are distinguished by the appearance of the lesions that form at the back of the eye.
Visudyne ® Approvals
Predominantly Classic CNV in AMD
Visudyne has been approved for marketing for predominantly classic subfoveal CNV in AMD in over 75 countries, including the U.S., Canada, Japan, Australia, New Zealand and the EU countries.
Occult with no Classic CNV in AMD
Visudyne has been approved for the occult form of CNV in a number of countries, including Australia, New Zealand, Switzerland and Japan. Until recently, Visudyne was approved in the EU for the occult form of CNV. In April 2007, after reviewing the results in the Visudyne occult study, the Committee for Medicinal Products for Human Use, or “CHMP,” recommended to the European Commission that the indication of the use of Visudyne in the treatment of the occult form of CNV be deleted from the label for Visudyne in the EU. In June 2007, the European Medicines Agency, or “EMEA,” endorsed the recommendation by CHMP to delete the indication of Visudyne in the treatment of occult subfoveal CNV from the label for Visudyne in the EU.
CNV due to Pathologic Myopia (PM)
Pathologic myopia, or PM, is a degenerative form of near-sightedness that occurs largely in persons aged 30 to 50 and can result in CNV. Based on proprietary market research, we estimate that the worldwide incidence of CNV secondary to PM is approximately 50,000 new patients every year. We have received regulatory approval of Visudyne for the treatment of subfoveal CNV due to PM in more than 60 countries, including the U.S., Canada and the EU.

CNV due to Presumed Ocular Histoplasmosis Syndrome (OHS)
Presumed ocular histoplasmosis syndrome, or “OHS”, is a condition caused by a fungal infection endemic to certain areas in central and eastern U.S. It can lead to severe, irreversible vision loss and is a leading cause of blindness in adults who have lived in geographic areas where the soil mould Histoplasma capsulatum is found. There are an estimated 100,000 people who are at risk for vision loss within this endemic area. The FDA approved Visudyne for the treatment of subfoveal CNV secondary to OHS in 2001 and approval for this indication was obtained in Canada in 2004.
Eligard ®
Eligard product for prostate cancer incorporates a luteinizing hormone-releasing hormone agonist, or “LHRH agonist,” known as leuprolide acetate with our proprietary Atrigel drug delivery system. The Atrigel technology allows for sustained delivery of leuprolide acetate for periods ranging from one month to six months.
Clinical trials have demonstrated that the sustained release of a LHRH agonist decreases testosterone levels to suppress tumor growth in patients with hormone-responsive prostate cancer. The Phase III results for the Eligard 7.5-mg one-month, 22.5-mg three-month, 30.0-mg four-month and 45.0-mg six-month products demonstrated low testosterone levels with 99% of completing patients achieving and maintaining suppression levels equivalent to castration.
Eligard is injected subcutaneously as a liquid. The polymers precipitate after injection forming a solid implant in the body that slowly releases the leuprolide as the implant is bioabsorbed.
Eligard ® 7.5-mg One-Month and 22.5-mg Three-Month Products
Eligard ® 7.5-mg one-month and 22.5-mg three-month products have been approved for marketing for prostate cancer in over 30 countries, including the U.S., Canada, 26 European countries, Australia, New Zealand, India, Korea and a number of Latin American countries.
Eligard ® 30.0-mg Four-Month Product
Eligard ® 30.0-mg four-month product has been approved for marketing for prostate cancer in the U.S., Canada, Australia, New Zealand, India and Korea.
Eligard ® 45.0-mg Six-Month Product
Eligard ® 45.0-mg six-month product has been approved for marketing for prostate cancer in the U.S., Canada, Australia, New Zealand, 27 European countries, India and Korea.
Aczone™
In July 2005, we received approval from the FDA for Aczone, our proprietary product for the treatment of acne vulgaris. Aczone incorporates dapsone, an anti-inflammatory and anti-microbial drug, with our proprietary solvent microparticle system or SMP™.
In approving Aczone, the FDA required a restriction to be placed on the label for Aczone requiring that patients be screened to detect if they are predisposed to one type of anemia (hemolytic anemia) because of a specific enzyme deficiency, G6PD (Glucose 6-phosphate dehydrogenase) deficiency. Patients who have this enzyme deficiency will need to be monitored by their physician with regular blood counts if they are prescribed Aczone. In the Aczone clinical trial program, 1.4% of about 3500 patients had this disorder which is consistent with the incidence in the general North American population. Certain populations, mainly males of African American descent, have a higher reported incidence of approximately 10-14%. As requested by the FDA, we undertook a post-approval Phase IV study in more than 50 acne patients who have G6PD deficiency. These patients were followed for approximately six months after enrollment (including three months treatment with Aczone). The positive findings of this clinical trial were released in November 2006. A label revision supplement was submitted to the FDA during the second quarter of 2007 in order to request that the FDA remove the label requirement for blood testing for all patients treated with Aczone. This label revision supplement was accepted by the FDA in July 2007 for filing and review. A decision by the FDA on the label revision is expected by March 23, 2008, the Prescription Drug User Fee Act (PDUFA) date, but may be later if the FDA does not meet or extends the PDUFA date.

Aczone was approved by Health Canada in June 2006 with a similar label restriction as that required by the FDA. A similar label revision supplement as that filed with the FDA to remove the requirement for blood testing for all patients treated with Aczone was filed with Health Canada in July 2007.
Our Products under Regulatory Review
Eligard ® 7.5-mg one-month product
Our commercial licensees have filed marketing authorizations for Eligard 7.5-mg one-month product in six countries outside of North America.
Eligard ® 22.5-mg three-month product
Our commercial licensees have filed marketing authorizations for Eligard 22.5-mg three-month product in five countries outside of North America.
Eligard ® 30.0-mg four-month product
Our commercial licensees have filed marketing authorizations for Eligard 30.0-mg four-month product in one country outside of North America.
Eligard ® 45.0-mg six-month product
Our commercial licensees have filed marketing authorizations for Eligard 45.0-mg six-month product in one country outside of North America.
Our Products in Development
Expansion of Visudyne ® Therapy
We are continuing efforts to improve the effectiveness of Visudyne therapy by exploring combination therapies and the effect of lower light doses (for example through reduced rate of fluence) administered during the PDT process.
In view of the importance of understanding the clinical significance of the use of Visudyne in combination with other therapies for the treatment of wet AMD, Novartis and QLT have each initiated studies comparing the safety and efficacy of Visudyne in combination with an anti-VEGF drug either as bi-therapy (Visudyne, plus an anti-VEGF) or triple therapy (Visudyne, plus an anti-VEGF and a steroid). These studies include the North American studies RADICAL and DENALI, and the European study MONTBLANC. RADICAL is sponsored by QLT, while the DENALI and MONTBLANC studies are sponsored by Novartis. The enrolment completion for these three studies is projected during the first half of 2008.
In addition, we are supporting certain investigator-sponsored studies which are evaluating different combinations of Visudyne with anti-VEGF drugs. Certain of these studies are also investigating the potential benefit of reduced fluence, or low light levels, on the efficacy and safety of Visudyne. Furthermore, we are maintaining two patient registries to consolidate and study retrospective data obtained by retina specialists who have already used Visudyne as part of bi- or triple therapy.
Punctal Plug Drug Delivery System
Our recently acquired proprietary punctal plug technology is a minimally invasive drug delivery system that we are developing with the goal of delivering a variety of drugs topically to the eye through controlled sustained release to the tear film. The first indication we are pursuing for this drug delivery system is for the treatment of glaucoma. We plan to initiate a Phase I/II clinical trial using this technology for the treatment of glaucoma in the first half of 2008. Glaucoma is a disease of the optic nerve involving loss of retinal ganglion cells in a characteristic pattern of a reduced or diminished visual field. Glaucoma is the second leading cause of blindness worldwide. Approximately 99% of glaucoma patients are treated with topical medications, 4—6% receive surgery and on average each

diagnosed patient has multiple visits to eye physicians each year. Due to the progressive nature of the disease, compliance with topical eye drop medications in glaucoma patients is crucial for effective management of the disease. Compliance with existing glaucoma medications is generally accepted to be low, with approximately half of treated patients in the U.S. not refilling their prescription after the first six months of therapy.
If successful, the punctal plug product, when inserted into the punctum in the eye and retained for the desired treatment duration, will allow for a steady stream of medication to be released into the tear film. Sustained delivery of therapeutics via the punctal plug system could result in stable, sustained topical drug concentrations. Successful development and subsequent regulatory approval of this application of the punctal plug delivery system could potentially replace, in whole or in part, the existing eye drop therapies used for the treatment of glaucoma. Our goal is to develop a punctal plug delivery product that may provide a more effective, convenient and reliable treatment alternative for glaucoma patients that could ultimately improve patient compliance with their medication and the long-term outcomes for their disease.
Lemuteporfin
Lemuteporfin is a proprietary photosensitizer (a light-activated drug) to which we own or exclusively license all rights. We are currently developing both a topical and an injectable formulation of lemuteporfin for the treatment of acne wherein Lemuteporfin is applied directly (topically) or through systemic administration (injectable) to the affected area and light is then shone on the area to activate the drug. Acne is the most common skin disease among humans, caused by a disorder of the sebaceous (oil) glands and the hair follicle, which is continuous with these glands. Dead skin cells, lipids (free fatty acids) and sebum, which is produced by the sebaceous glands, cause an enlargement and closure of skin pores. Phase I (topical) and Phase I/II (injectable) studies are ongoing in Canada with results expected in 2008.
Our Proprietary Technologies
Photodynamic Therapy
Our product Visudyne utilizes our patented photodynamic therapy, or PDT, technology.
PDT is a minimally invasive medical procedure that utilizes photosensitizers (light-activated drugs) to treat a range of diseases associated with rapidly growing tissue (such as the formation of solid tumors and abnormal blood vessels). PDT is a two-step process. First, the photosensitizer is administered to the patient by intravenous infusion or other means, depending on the condition being treated. Second, a pre-determined dose of non-thermal light is delivered at a particular wavelength to the target site to interact with the photosensitizer. The photosensitizer traps energy from the light and causes oxygen found in cells to convert to a highly energized form called “singlet oxygen” that causes cell death by disrupting normal cellular functions. Because the photosensitizer and light have no effect unless combined, PDT is a relatively selective treatment that minimizes damage to normal surrounding tissue and allows for multiple courses of therapy.
For ocular PDT applications, non-thermal lasers provide the necessary intensity of light required. For applications of PDT to internal organs, physicians use lasers and fiber optics to deliver the appropriate intensity of light to abnormal tissue.
Atrigel ® System for injectable sustained release drug delivery
The Eligard products utilize the Atrigel drug delivery system, our patented technology for the sustained release of drugs.
The Atrigel drug delivery system consists of biodegradable polymers, similar to those used in biodegradable sutures, dissolved in biocompatible carriers. Pharmaceuticals may be blended into this liquid delivery system at the time of manufacturing or, depending upon the product, may be added later by the physician at the time of use. When the liquid product is injected through a needle or placed into accessible tissue sites through a cannula, displacement of the carrier with water in the tissue fluids causes the polymer to precipitate, forming a solid film or implant. The drug encapsulated within the implant is then released in a controlled manner as the polymer matrix biodegrades over a specified time period. Depending upon the patient’s medical needs, the Atrigel system can deliver small molecules, peptides or proteins over a period ranging from days to months.

We believe that the Atrigel system may provide benefits over traditional methods of drug administration such as tablets or capsules, multiple injections and continuous infusion as a result of the following properties:
• Broad applicability—The Atrigel system is compatible with a broad range of pharmaceutical compounds, including water soluble and insoluble compounds and high and low molecular weight compounds, including peptides and proteins.

• Systemic drug delivery—The Atrigel system can also be used to provide sustained drug release into the systemic circulation.

• Customized continuous release and degradation rates—The Atrigel system can be designed to provide continuous release of incorporated pharmaceuticals over a targeted time period thereby reducing the frequency of drug administration.

• Biodegradability—The Atrigel system will biodegrade and does not require removal when the drug is depleted.

• Ease of application—The Atrigel system can be injected or inserted as flowable compositions, such as solutions, gels, pastes, and putties, by means of ordinary needles and syringes, or can be sprayed or painted onto tissues.

• Safety—All current components of the Atrigel system are biocompatible and have independently established safety and toxicity profiles.
Solvent Microparticle System for topical drug delivery
Our Aczone product utilizes our patented proprietary Solvent Microparticle System, or SMP™. The SMP technology comprises a two-stage system designed to provide topical delivery of highly water-insoluble drugs to the skin. The combination of dissolved drug with a microparticle suspension of the drug in a single formulation allows a controlled amount of the dissolved drug to permeate into the epidermal layer of the skin, while a high level of the microparticle drug is maintained just above the outermost layer of the skin for later delivery.
Punctal Plug Drug Delivery System
Our proprietary punctal plug drug delivery technology is a minimally invasive system which we are developing with the goal of delivering a variety of drugs to the eye through controlled sustained release to the tear film. This drug delivery platform has the potential to address a broad range of ocular diseases that are currently being treated with eye drops such as glaucoma, allergy, dry eye, surgical care and myopia. Our goal is to develop a delivery system comprising a proprietary punctal plug designed to be retained for the desired treatment duration and a proprietary drug delivery core which can be tailored to deliver a wide range of therapeutic agents over different time periods.
Current therapies using eye drops typically require fairly high drug doses due to the limits in drug penetration and the inefficient method of drug delivery. The periodic dosing of an eye drop results in a pulsatory dosing strategy with a diminishing drug concentration available in the eye in the time between drops. Sustained delivery of therapeutics via the punctal plug system could result in stable, sustained topical drug concentrations which, if achieved, we believe could be a desirable alternative for daily treatment with eye drops.
Significant Collaborative Arrangements
Novartis — PDT Product Development, Manufacturing and Distribution Agreement for Visudyne ® worldwide
Since 1995, we have had an agreement with Novartis for the worldwide development and commercialization of PDT products for eye diseases, including Visudyne. Under the terms of our agreement with Novartis, we are responsible for manufacturing and product supply of Visudyne and Novartis is responsible for marketing and distribution of Visudyne. We and Novartis share equally the profits realized on revenues from product sales after deductions for marketing costs and manufacturing costs (including any third-party royalties), all calculated according to a formula set out in our agreement.

CEO BACKGROUND

Robert L. Butchofsky was appointed as President and Chief Executive Officer of QLT in February 2006 following his earlier appointment as Acting Chief Executive Officer of QLT in September 2005 . Mr. Butchofsky joined QLT in 1998 as Associate Director, Ocular Marketing and was appointed Vice President, Marketing and Sales Planning in September 2001. Mr. Butchofsky was promoted to Senior Vice President, Marketing and Sales Planning where he was responsible for the ongoing marketing of Visudyne as well as the potential creation of a specialty sales force to market new products currently in development. Prior to joining QLT, Mr. Butchofsky spent eight years at Allergan where he built an extensive background with ocular products and Botox â , including sales, health economics, worldwide medical marketing, and product management. Prior to joining Allergan, Mr. Butchofsky spent several years managing clinical trials at the Institute for Biological Research and Development. Mr. Butchofsky holds a Bachelor of Arts degree in Biology from the University of Texas and a Masters of Business Administration from Pepperdine University.
Cameron R. Nelson joined QLT in May 2000 and was promoted to Vice President, Finance and Chief Financial Officer of QLT in August 2005. Prior to his appointment as Chief Financial Officer, Mr. Nelson held the position of Vice President, Finance and before that held positions of increasing responsibility within the Finance group of QLT including Associate Director, Financial Analysis and Planning, Director, Financial Analysis and Planning and later Senior Director, Financial Reporting and Planning. Prior to joining QLT, Mr. Nelson held finance and accounting positions with Mattel Inc. and Equity Marketing Inc. in Los Angeles. Mr. Nelson earned his Bachelor of Commerce from the University of British Columbia and his Master of Business Administration from Dartmouth College.
Alain H. Curaudeau joined QLT in 2000 as Vice President, Project Planning and Management and was promoted to Senior Vice President, Project Planning and Management in July 2001. Furthermore, he has been Acting Senior Vice President, Research and Development since January 2006. He came to QLT with extensive global experience in pharmaceutical R&D after serving more than 15 years with Rhone-Poulenc Rorer (RPR), a major international pharmaceutical company. Mr. Curaudeau’s tenure with RPR included 14 years of progressively senior positions in project management, in France and in the U.S. Before joining QLT, he was designated head of Project Management for Aventis, a new company formed in 1999 by the merger between Rhone-Poulenc Rorer and Hoechst AG. Mr. Curaudeau holds Bachelors and Masters degrees in Pharmacy from the University of Chatenay-Malabry, Paris, France. He is also a graduate of the Toxicology and Pharmacokinetics Programs from the same university and received academic training in toxicological pathology from the National Veterinary School in Toulouse, France.
Linda M. Lupini was promoted to Senior Vice President, Human Resources and Organizational Development in February 2003. Ms. Lupini joined QLT in 1997 as Director, Human Resources, and was promoted to Vice President, Human Resources and Administration in March 2000. Ms. Lupini joined QLT after serving as Human Resources Director at MacDonald Dettwiler and Associates Ltd., a leading technology firm in Western Canada. Ms. Lupini, who holds a Bachelor of Arts degree in psychology from the University of British Columbia, is a member of several human resource and industry associations and serves as a board member of the Simon Fraser University MBD Program Advisory Committee and a board member of the BC Human Resources Council of Canada.
Alexander R. Lussow joined QLT in 2006 as Vice President, Business Development and is responsible for QLT’s business development activities, including product licensing, acquisitions and strategic partnering opportunities. Beginning in 2008, Dr. Lussow’s responsibilities expanded to include marketing and product operations. From 2004 to 2006, Dr. Lussow established a biotechnology management consulting firm assisting biotechnology companies to raise venture financing and in-license and out-license opportunities. From March 2001 to November 2004, Dr. Lussow was the Chief Business Officer and Vice President of Business Development of Gryphon Therapeutics, Inc. where he was responsible for product licensing, strategic alliances, corporate communications and fund raising. Prior to that, from March 1994 to March 2001, Dr. Lussow was the head of business development at Sangstat Medical Corporation (now wholly owned by Genzyme Corp.). Dr. Lussow received his BSc at McGill University in Montreal and his PhD in immunology at the University of Geneva, Switzerland. From 2002 to 2004, Dr. Lussow was an adjunct professor of pharmacology at the University of North Carolina, USA and has worked for the World Health Organization in West Africa.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW
We are a global biopharmaceutical company with two commercial products, Visudyne ® and Eligard ® , which were derived from our two unique technology platforms, photodynamic therapy and Atrigel ® . Our research and development efforts are focused on pharmaceutical products in the fields of ophthalmology and dermatology. Since our acquisition of ForSight Newco II, Inc. (now QLT Plug Delivery, Inc.) on October 18, 2007, we are also developing an ocular punctal plug drug delivery system.
QLT was formed in 1981 under the laws of the Province of British Columbia, Canada. Our first commercial product was in the field of photodynamic therapy, or “PDT,” which uses photosensitizers (light activated drugs) in the treatment of disease. Our commercial product, Visudyne, utilizes PDT to treat the eye disease known as wet age related macular degeneration, or “wet AMD,” the leading cause of blindness in people over the age of 55 in North America and Europe.
Visudyne is commercially available in more than 75 countries, including the U.S., Canada, Japan and the European Union, or “EU,” countries, for the treatment of a form of wet AMD known as predominantly classic subfoveal choroidal neovascularization, or “CNV.”
Visudyne is also approved for the treatment of the form of wet AMD known as occult subfoveal CNV, “occult AMD,” in certain countries. During 2007, health authorities in the EU removed occult AMD from the officially approved indications. This change is applicable to all EU member countries. Although we expect Visudyne European sales to decline as a result, the degree of decline should vary by country as the occult indication was not universally reimbursed across Europe previously, despite regulatory approval, and may also depend on potential market adoption of Visudyne following clinical trial results studying the use of Visudyne in combination with other compounds.
Visudyne is reimbursed in the U.S. by the Centers for Medicare & Medicaid Services for certain patients with the occult and minimally classic forms of wet AMD. Visudyne is also approved in more than 60 countries, including the U.S., Canada and the EU countries, for the treatment of subfoveal CNV due to pathologic myopia (severe near-sightedness). In some countries, including the U.S. and Canada, Visudyne is also approved for presumed ocular histoplasmosis or other macular diseases. Visudyne was co-developed by QLT and Novartis Pharma AG of Switzerland (“Novartis “) and is manufactured by QLT and sold by Novartis under the terms of a co-development, manufacturing and commercialization agreement with Novartis.
In addition to Visudyne, we market (through commercial licensees) the Eligard line of products for the treatment of prostate cancer. The Eligard product line includes four different commercial formulations of our Atrigel ® technology combined with leuprolide acetate for the treatment of prostate cancer. The FDA has approved all four products: Eligard 7.5-mg (one-month), Eligard 22.5-mg (three-month), Eligard 30.0-mg (four-month) and Eligard 45.0-mg (six-month). The Eligard 7.5-mg (one-month) and Eligard 22.5-mg (three-month) products are also approved in a number of other countries, including 26 European countries, Canada, Australia, New Zealand, India, Korea and a number of Latin American countries. In addition to the U.S., Eligard 30-mg (four-month) is approved in Canada, Australia, New Zealand, Korea and India while Eligard 45.0-mg (six-month) is approved in 27 European countries, Canada, Australia and India.
Our most advanced proprietary dermatology product, Aczone™, was approved by the FDA in July 2005 and by Health Canada in June 2006. Although Aczone is approved in the U.S. and Canada, it is not yet marketed. Based on a post-approval commitment requested by the FDA, we conducted a Phase IV clinical trial of Aczone™ in more than 50 patients with glucose-6-phosphate dehydrogenase, or “G6PD,” deficiency and communicated the positive outcome of this study in November 2006. A label revision supplement was submitted to the FDA during the second quarter of 2007 and in July 2007 it was accepted by the FDA for filing and review. A decision by the FDA on the label revision is expected by March 23, 2008, the Prescription Drug User Fee Act (PDUFA) date, but may be later if the FDA does not meet or extends the PDUFA date.
RECENT DEVELOPMENTS
On November 28, 2007, we announced the formation of a Special Committee of the Board of Directors, comprised of three independent Directors, to review all strategic alternatives available to the Company. The Special Committee has been charged with the responsibility for exploring alternative ways to maximize shareholder value, including transactions involving the sale of all or part of the assets of the Company. The Board of Directors engaged Goldman, Sachs & Co. (“Goldman Sachs”), a global investment bank, as its financial advisor to assist withidentifying, evaluating and pursuing alternative strategies. On January 16, 2008, we announced that following a comprehensive business and portfolio review, the Board of Directors decided to implement initial steps in the Company’s strategic restructure designed to enhance shareholder value. These initiatives include:
• the sale of QLT USA, Inc. (“QLT USA”), our wholly owned U.S. subsidiary, whose primary assets include the Eligard product line for prostate cancer, Aczone, a dermatology product for the treatment of acne vulgaris, and the Atrigel drug delivery system, either in a single transaction or a series of transactions;
• the sale of the land and building associated with and surrounding our corporate head office in Vancouver; and
• the reduction in headcount of 115 employees with planned future reductions as assets are divested.
On January 18, 2008 we implemented the reduction in head count that affected 115 people (or approximately 45%) at our Vancouver headquarters and our U.S. subsidiaries, including several members of senior management. The majority of the affected employees will have left the Company by March 31, 2008.
The plan to pursue a sale of the assets described above is part of a significant strategic change pursuant to which our initial plan is to focus our ongoing business primarily on our Visudyne product and our clinical development programs related to our punctal plug delivery technology and our photodynamic therapy dermatology technology (Lemuteporfin — QLT0074). The goal of maximizing shareholder value will be the key driver in any decisions we make regarding specific deal structures or transactions into which we may enter. We can provide no assurances that we will be able to negotiate the sale of these assets on terms acceptable to us or at all or that we will pursue any particular transaction structure. Goldman Sachs will assist us as we review and evaluate transaction proposals that we may receive.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our consolidated financial statements, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Significant estimates are used for, but not limited to, provision for litigation related contingencies, stock-based compensation, provisions for non-completion of inventory, determination of requirement for reserve for obsolete or excess inventory, classification of inventory between current and non-current assets, assessment of the recoverability of long-lived assets, assessment of impairment of goodwill, accruals for contract manufacturing and research and development agreements, allocation of costs to manufacturing under a standard costing system, allocation of overhead expenses to research and development, determination of fair value of assets and liabilities acquired in net assets acquisition or purchase business combinations, provisions for taxes and determination of uncertain tax position. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include those which follow:
Reporting Currency and Foreign Currency Translation
We use the U.S. dollar as our reporting currency, while the Canadian dollar is the functional currency for QLT Inc., and the U.S. dollar is the functional currency for our U.S. subsidiaries. Our consolidated financial statements are translated into U.S. dollars using the current rate method. Assets and liabilities are translated at the rate of exchange prevailing at the balance sheet date. Shareholders’ equity is translated at the applicable historical rates. Revenues and expenses are translated at a weighted average rate of exchange for the respective years. Translation gains and losses from the application of the U.S. dollar as the reporting currency are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive income (loss). There are no significant estimates involved in applying the current rate method. As of December 31, 2007, our accumulated other comprehensive income totalled $112.3 million.
Revenue Recognition
Net Product Revenue
Our net product revenues are primarily derived from sales of Visudyne ® and Eligard ® .

With respect to Visudyne, under the terms of the PDT Product Development, Manufacturing and Distribution Agreement with Novartis we are responsible for Visudyne manufacturing and product supply, and Novartis is responsible for marketing and distribution of Visudyne. Our agreement with Novartis provides that the calculation of total revenue for the sale of Visudyne be composed of three components: (1) an advance on the cost of inventory sold to Novartis, (2) an amount equal to 50% of Novartis’ net proceeds from Visudyne sales to end-customers (determined according to a contractually agreed definition), and (3) the reimbursement of other specified costs incurred and paid for by us. We recognize revenue from the sale of Visudyne when persuasive evidence of an arrangement exists, delivery to Novartis has occurred, the end selling price of Visudyne is fixed or determinable, and collectibility is reasonably assured. Under the calculation of revenue noted above, this occurs when Novartis has sold Visudyne to its end customers. Our revenue from Visudyne will fluctuate dependent upon Novartis’ ability to market and distribute Visudyne to end customers.
We record product revenue from Visudyne based on the final net proceeds reconciliation provided by Novartis at the end of each reporting period. The net proceeds reconciliation is based on actual sales of Visudyne less actual marketing, distribution, inventory, and royalty costs. This reconciliation is provided by Novartis on a timely basis based upon mutually agreed upon dates. We evaluate the accuracy and completeness of the information by holding regular discussions with Novartis, comparing to historical results as well as comparing to our internal forecasts. Furthermore, we conduct periodic audits of selected records of Novartis and/or its affiliates to ensure that revenue and expenses are appropriate and recorded accurately.
With respect to Eligard, under the terms of the license agreements with QLT USA’s commercial licensees, we are responsible for Eligard manufacturing and supply and receive from our commercial licensees an agreed upon sales price upon shipment to them. (We also earn royalties from certain commercial licensees based upon their sales of Eligard products to end customers. These royalties are included in net royalty revenue.) We recognize net revenue from product sales when persuasive evidence of an arrangement exists, product is shipped and title is transferred to our commercial licensees, collectibility is reasonably assured and the price is fixed or determinable. Our net product revenue from Eligard will fluctuate dependent upon our ability to deliver Eligard products to our commercial licensees. Our Eligard commercial licensees are responsible for all products after shipment from our facility. Under this calculation of revenue, we recognize net product revenue from Eligard at the time of shipment to our commercial licensees.
We do not offer rebates or discounts in the normal course of business and have not experienced any material product returns; accordingly, we do not provide an allowance for rebates, discounts, and returns.
Net Royalties
We recognize net royalties when product is shipped by certain of our commercial licensees to end customers based on royalty rates specified in our agreements with them. Generally, royalties are based on net product sales (gross sales less discounts, allowances and other items) and calculated based on information supplied to us by our commercial licensees.
Contract Research and Development
Contract research and development revenues consist of non-refundable research and development funding under agreements with third parties with whom we have research or development relationships or licenses. Contract research and development funding generally compensates us for discovery, preclinical and clinical expenses related to the collaborative development programs for certain products and product candidates, and is recognized as revenue at the time research and development activities are performed under the terms of those agreements. For fixed price contracts, we recognize contract research and development revenue over the term of the agreement consistent with the pattern of work performed. Amounts received under those agreements for work actually performed are non-refundable even if the research and development efforts performed by us do not eventually result in a commercial product. Contract research and development revenues earned in excess of payments received are classified as contract research and development receivables and payments received in advance of revenue recognition are recorded as deferred revenue.

Licensing and milestones
We have licensing agreements that generally provide for non-refundable license fees and/or milestone payments. The licensing agreements typically require a non-refundable license fee and allow licensees to sell our proprietary products in a defined territory for a defined period. A milestone payment is a payment made by a licensee to us upon achievement of a pre-determined event, as defined in the applicable license agreement. Non-refundable license fees and milestone payments are initially reported as deferred revenue. They are recognized as revenue over the remaining contractual term of the license agreement or as covered by patent protection, whichever is earlier, using the straight-line method or until the license agreement terminates. No milestone revenue is recognized until we have completed the required milestone-related services as set forth in the license agreement.
Cost of Sales
Visudyne cost of sales, consisting of expenses related to the production of bulk Visudyne and royalty expense on Visudyne sales, are charged against earnings in the period that Novartis sells to end customers. Cost of sales related to the production of various Eligard products are charged against earnings in the period of the related product sale to our commercial licensees. We utilize a standard costing system, which includes a reasonable allocation of overhead expenses, to account for inventory and cost of sales, with adjustments being made periodically to reflect current conditions. Our standard costs are estimated based on management’s best estimate of annual production volumes and material costs. Overhead expenses comprise direct and indirect support activities related to the manufacture of bulk Visudyne and various Eligard products and involve costs associated with activities such as quality inspection, quality assurance, supply chain management, safety and regulatory. There are three areas within our inventory costing system that require significant management judgment and estimates: (a) annual production volume, (b) overhead allocation, and (c) provision for non-completion of product inventory. These three areas are described below:
(a) We estimate our production volume at the beginning of the year in order to arrive at a per unit allocation of fixed costs. Our estimate of production volume is based on our forecast of product sales and is updated periodically.
(b) We estimate our overhead expenses in the beginning of the year in order to arrive at a per unit allocation of overhead. Our estimate of overhead expenses is based on historical experience and the projected production volume. We update our estimate on a periodic basis based on the latest information. Overhead expenses are allocated to inventory at various stages of the manufacturing process under a standard costing system, and eventually to cost of sales as the related products are sold to our commercial licensees or in the case of Visudyne, by Novartis to third parties.
(c) We record a provision for the non-completion of product inventory based on our history of batch completion to provide for the potential failure of inventory batches to pass quality inspection. The provision is calculated at each stage of the manufacturing process. We estimate our non-completion rate based on past production and adjust our provision based on actual production volume. A batch failure may utilize a significant portion of the provision as a single completed batch currently costs up to $1.3 million, depending on the product and the stage of production.
While we believe our standard costs are reliable, actual production costs and volume changes may impact inventory, cost of sales, and the absorption of production overheads.
Inventory that is obsolete or expired is written down to its market value if lower than cost. Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory are recorded primarily based on our forecast of future demand and market conditions. If actual market conditions differ from those we have assumed, if there is a sudden and significant decrease in demand for our products, or if there is a higher incidence of inventory obsolescence due to a rapid change in technology, we may be required to take additional provision for excess or obsolete inventory.
Stock-Based Compensation
On January 1, 2006, we adopted SFAS 123 Revised, Share-Based Payment, (“SFAS 123R”) using the modified prospective method. This statement eliminated the alternative to account for stock-based compensation using the intrinsic value method in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires such transactions be recognized as compensation expense in the statement of earnings based on their fair values on the date of the grant, with the compensation expense recognized over the period in which a grantee is required to provide service in exchange for the stock

award. Compensation expense recognition provisions are applicable to new awards and to any awards modified, repurchased or cancelled after the adoption date. Additionally, for any unvested awards outstanding at the adoption date, we recognize compensation expense over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under Statement of Financial Accounting Standard 123, Accounting for Stock-Based Payment , or SFAS 123. As stock-based compensation expenses recognized in the statement of income for the years ended December 31, 2007 and December 31, 2006 were based on awards ultimately expected to vest, they were reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
We use the Black-Scholes option pricing model to estimate the value of our stock option awards at each grant date. 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 terms of our stock options.
For the year ended December 31, 2007, stock based compensation of $3.5 million was expensed as follows: $2.2 million to research and development costs, $1.3 million to selling, general and administrative costs, and a negligible amount to cost of sales and restructuring. The weighted average assumptions used for options granted during 2007 included a volatility factor of 37.0%, a 3.3 year term until exercise, and a 4.4% risk free interest rate.
For the year ended December 31, 2006, stock based compensation of $4.2 million was expensed as follows: $2.4 million to research and development costs, $1.3 million to selling, general and administrative costs, $0.4 million to discontinued operations and a negligible amount to cost of sales. The assumptions used for options granted during 2006 included a volatility factor of 44.5%, a 3.0 year term until exercise, and a 4.1% risk free interest rate.
Research and Development
Research and development, or R&D, costs are expensed as incurred and consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with our various research and development programs. Overhead expenses comprise general and administrative support provided to the research and development programs and involve costs associated with support activities such as facility maintenance, utilities, office services, information technology, legal, accounting and human resources. Significant management judgment is required in the selection of an appropriate methodology for the allocation of overhead expenses. Our methodology for the allocation of overhead expenses utilizes the composition of our workforce as the basis for our allocation. Specifically, we determine the proportion of our workforce that is dedicated to R&D activities and allocate to our R&D expense the equivalent proportion of overhead expenses. We consider this method the most reasonable method of allocation based on the nature of our business and workforce. Changes in the composition of our workforce and the types of support activities are factors that can influence our allocation of overhead expenses. Costs related to the acquisition of development rights for which no alternative use exists are classified as research and development and expensed as incurred. Patent application, filing and defense costs are also expensed as incurred. R&D costs also include funding provided under contractual collaborative arrangements for joint R&D programs.
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. Significant estimates are required in determining our provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. Various internal and external factors may have favorable or unfavorable effects on our future effective tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in estimates of prior years’ items, results of tax audits by tax authorities, future levels of research and development spending, and changes in overall levels of pre-tax earnings. The realization of our deferred tax assets is primarily dependent on generating sufficient 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.

We assess our income tax positions in accordance with the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. There is inherent uncertainty in quantifying income tax positions. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. (See Note 18 - Income Taxes in “Notes to the Consolidated Financial Statements” in this Report.)
Discontinued Operations
In December 2006, we completed the sale of certain non-core assets, principally the generic dermatology business, dental business and related manufacturing facility of QLT USA in Fort Collins, Colorado. The results of operations, including the loss on disposal, for these businesses classified as held for sale, were excluded from continuing operations and reported as discontinued operations for the current and prior periods. Additionally, segment information does not include the results of businesses classified as discontinued operations.


COMPARISON OF YEARS ENDED DECEMBER 31, 2007 AND 2006
For the year ended December 31, 2007, we recorded a net loss of $110.0 million, or $1.47 per common share. These results compare to a net loss of $101.6 million, or $1.20 per common share, for the year ended December 31, 2006. The following is a detailed discussion and analysis of our results of operations:

Revenues
Net Product Revenue

For the year ended December 31, 2007, revenue from Visudyne declined by $61.6 million, or 48%, to $67.7 million compared to the year ended December 31, 2006. The decrease was primarily due to a 39% decline in Visudyne sales as a result of decreased end user demand worldwide due to competing therapies. For the year ended December 31, 2007, approximately 49% (2006 — 52%) of total Visudyne sales were in Europe, 18% (2006 — 20%) were in the United States, and 34% (2006 — 28%) were in other markets worldwide. Overall the ratio of our share of revenue on final sales compared to Visudyne sales was 20.7% for the year ended December 31, 2007, down from 27.6% in the prior year.
For the year ended December 31, 2007, net product revenue from Eligard of $28.1 million increased by $5.6 million (or 25%) over the prior year due to increased shipments of Eligard to commercial licensees, which was driven by Eligard’s continued growth in Europe and the U.S.
Net Royalties
For the year ended December 31, 2007, royalty revenue of $30.4 million was $9.3 million (or 44%) higher compared to the same period in 2006. The increase was due to Eligard’s continued growth in Europe and the U.S.
Costs and Expenses
Cost of Sales
For the year ended December 31, 2007, cost of sales increased 8% to $45.4 million compared to $42.2 million for the same period in 2006. The increase was due to higher shipments of Eligard to our commercial licensees, a Visudyne inventory obsolescence charge of $3.1 million, partially offset by lower sales of Visudyne.
Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory are recorded primarily based on our forecast of future demand and market conditions. During the fourth quarter of 2007, we reviewed our Visudyne inventory quantities and concluded that based on our forecast of future Visudyne demand, certain early stage materials used in the manufacture of Visudyne are potential excess inventory. As a result, we provided a reserve against the excess inventory and recorded a charge of $3.1 million in cost of sales. Excluding the provision for excess inventory, cost of sales related to Visudyne decreased from $22.9 million to $12.2 million in the year ended December 31, 2007 compared to the same period in 2006 due to the decline in Visudyne sales. Cost of sales related to Eligard increased from $19.3 million to $30.1 million in the year ended December 31, 2007 compared to the same period in 2006 due to the continued growth of Eligard in Europe and the U.S.
Accrued Cost of Sales re: MEEI
On July 18, 2007, the Court entered judgment in relation to the patent litigation with MEEI in which it found that we were liable under Massachusetts state law for unfair trade practices, but that such violation was not knowing or willful, and determined that we should pay to MEEI 3.01% of past, present and future net sales worldwide of Visudyne. As a result, in the third quarter of 2007, we began accruing an amount equal to 3.01% of net worldwide sales of Visudyne, pursuant to and pending outcome of our appeal of the judgment, as a charge to our cost of sales. (See Item 3. Legal Proceedings and Note 23 — Contingencies in the “Notes to the Consolidated Financial Statements” in this Report.)
Research and Development
Research and development, or R&D, expenditures decreased 18% to $46.4 million for the year ended December 31, 2007 compared to $56.4 million in the same period in 2006. The decrease was primarily due to reduced spending on Atrigel and Aczone projects. Furthermore, the prior year included a $1.9 million in-licensing fee, whereas there were no in-licensing fees in 2007. The decreases were partly offset by higher spending on ocular research and punctal plug development.

The magnitude of future R&D expenses is highly variable and depends on many factors over which we have limited visibility and control. Numerous events can happen to an R&D project prior to it reaching any particular milestone which can significantly affect future spending and activities related to the project. These events include:
• changes in the regulatory environment,

• introduction of competing treatments,

• unexpected safety issues,

• patent maintenance and enforcement issues,

• changes in the commercial marketplace,

• difficulties in enrolling patients,

• delays in study progression,

• inability to develop cost effective manufacturing methods that comply with regulatory standards,

• uncertainties related to collaborative arrangements,

• environmental risks, and

• other factors discussed under “Item 1A. Risk Factors” and “Recent Developments” in this Report.
R&D expenditures by therapeutic area were as follows:

Selling, General and Administrative Expenses
For the year ended December 31, 2007, SG&A expenses decreased 35% to $27.4 million compared to $42.2 million for the same period in 2006. The decrease was primarily due to lower legal fees as a result of the TAP litigation settlement and completion of the MEEI trial at the district court level. This was partly offset by increased Visudyne support costs.

Litigation
In July 2007, the United States District Court (the “Court”) for the District of Massachusetts entered judgment in the lawsuit brought against us by MEEI in connection with U.S. patent no. 5,789,349. The Court found that we were liable under Massachusetts state law for unfair trade practices, but that such violation was not knowing or willful, and determined that we should pay MEEI 3.01% of past, present and future net sales worldwide of Visudyne. The Court also awarded interest at the Massachusetts statutory rate of 12% on the amounts as they would have become payable, from April 24, 2000. The Court further awarded MEEI its legal fees in an amount of $14.1 million, to which will be applied a reduction of $3 million previously agreed to by MEEI. As a result, we recorded a charge of $110.2 million and accrued a litigation reserve in the same amount.
On February 9, 2007, QLT USA, and Sanofi-Synthelabo entered into a Settlement, Release and Patent License to settle the TAP Litigation, and without admitting liability, QLT USA paid $112.5 million and Sanofi-Synthelabo paid $45.0 million, for an aggregate settlement amount of $157.5 million. As a result of this settlement, we recorded a charge of $112.5 million in 2006.
In-process Research and Development
On October 18, 2007, we completed the acquisition of ForSight Newco II, Inc. for a cash payment of $41.4 million on closing and future contingent consideration in the nature of milestone payments and royalties on net sales of products. The milestone payments consist of a one-time $5 million payment upon the initiation of a phase III clinical trial for the first product, $20 million on first commercialization of each of the first two products using the proprietary technology, and $15 million on first commercialization of each subsequent product. The aggregate consideration for the acquisition of ForSight Newco II was $42.3 million, which included acquisition related expenditures of $0.9 million. ForSight Newco II owns certain patent applications with respect to its proprietary ocular punctal plug drug delivery system. ForSight Newco II was created by ForSight Labs, LLC in December 2006 as a spin-out for their punctal plug drug delivery system. ForSight Labs, LLC is an ophthalmic technology incubator established in 2005 with a focus on developing ophthalmic innovation. (ForSight Newco II, Inc.’s name was changed to QLT Plug Delivery, Inc. on the date of acquisition.)
The acquired in-process R&D, or “IPR&D,” relates to the proprietary ocular punctal plug drug delivery system. As of the acquisition date, the punctal plug drug delivery system had not reached technological feasibility and will require a substantial amount of time and costs to complete. Prior to commercialization, approvals from the U.S. Food and Drug Administration and other regulatory agencies are still required. Accordingly, we allocated to IPR&D and charged to expense $42.9 million representing the portion of the purchase price attributable to the punctal plug drug delivery system. We calculated the charge to IPR&D by determining the fair value of the punctal plug drug delivery system using the income approach. Under the income approach, expected future after-tax cash flows are estimated and discounted to their net present value at an appropriate risk-adjusted rate of return. Revenues were estimated based on relevant market size and growth factors, expected industry trends, product sales cycles, and the estimated life of the product’s underlying technology. Estimated operating expenses, and income taxes were deducted from estimated revenues to determine estimated after-tax cash flows. These projected future cash flows were further adjusted for risks inherent in the development life cycle. These forecasted cash flows were then discounted based on our estimated weighted average cost of capital.
We recorded the acquisition of ForSight Newco II as a purchase of net assets in accordance with SFAS No. 141, Business Combinations , which referenced the criteria in EITF 98-3 Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business for evaluating whether a business or assets have been received in a transaction. (See Note 8 — Acquisition of ForSight Newco II, Inc.)

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS
For the three and six months ended June 30, 2008, we recorded a net loss of $7.5 million and $17.9 million, or $0.10 and $0.24 net loss per common share, respectively. These results compare with a net loss of $68.7 million and $63.8 million, or $0.92 and $0.85 net loss per common share for the three and six months ended June 30, 2007, respectively. Detailed discussion and analysis of our results of operations are as follows:
Revenues

For the three months ended June 30, 2008, revenue from Visudyne sales of $13.7 million decreased by $5.3 million, or 28%, from the three months ended June 30, 2007. The decrease was primarily due to a 32% decline in Visudyne sales by Novartis over the same quarter in the prior year as a result of decreased end user demand due to competing therapies. In the second quarter of 2008, approximately 25% of the total Visudyne sales by Novartis were in the U.S., compared to approximately 17% in second quarter of 2007. Overall the ratio of our share of net proceeds from Visudyne sales compared to Visudyne sales was 23.2% in the second quarter of 2008, down from 24.2% in the second quarter of 2007.
For the six months ended June 30, 2008, revenue from Visudyne sales of $25.6 million decreased by $14.0 million, or 35%, from the six months ended June 30, 2007. The decrease was primarily due to a 36% decline in Visudyne sales by Novartis over the same period in the prior year as a result of decreased end-user demand due to competing therapies. In the six months ended June 30, 2008, approximately 25% of the total Visudyne sales by Novartis were in the U.S., compared to approximately 16% in same period in 2007. Overall the ratio of our share of net proceeds from Visudyne sales compared to Visudyne sales was 22.4% in the six months ended June 30, 2008, down from 24.4% in the six months ended June 30, 2007.
Costs and Expenses
Cost of Sales
For the three months ended June 30, 2008, cost of sales was $3.2 million, flat in comparison to the same period in 2007. For the six months ended June 30, 2008, cost of sales decreased 19% to $5.4 million compared to $6.6 million for the same period in 2007. A decrease in cost of sales related to the drop in Visudyne sales for the three and six months ended June 30, 2008 was offset by a $0.9 million inventory write-down.
Accrued Cost of Sales re: MEEI
As a result of the damage award imposed by the Court in relation to the patent litigation with MEEI, we are accruing an amount equal to 3.01% of net worldwide sales of Visudyne as a charge to our cost of sales, pursuant to and pending

outcome of our appeal of the judgment. See Note 13 — Contingencies in the “Notes to Condensed Consolidated Financial Statements”.
Research and Development
Research and development (“R&D”) expenditures decreased 7% to $8.1 million for the three months ended June 30, 2008 compared to $8.7 million in the same period in 2007. For the six months ended June 30, 2008, R&D decreased 6% to $16.2 compared to $17.2 million for the same period in 2007. Significant reductions in spending on early stage research projects and reduced overhead expenses were mostly offset by higher spending on punctal plug development and Visudyne combination studies.
The magnitude of future R&D expenses is highly variable and depends on many factors over which we have limited visibility and control. Numerous events can happen to an R&D project prior to it reaching any particular milestone which can significantly affect future spending and activities related to the project. These events include:
• changes in the regulatory environment,

• introduction of competing technologies and treatments,

• unexpected safety issues,

• patent application, maintenance and enforcement issues,

• changes in the commercial marketplace,

• difficulties in enrolling patients,

• delays in study progression, including regulatory delays,

• inability to develop cost effective manufacturing methods that comply with regulatory standards,

• uncertainties related to collaborative arrangements,

• environmental risks, and

• other factors discussed under “Item 1A, Risk Factors”.

Selling, General and Administrative Expenses
For the three months ended June 30, 2008, selling, general and administrative (“SG&A”) expenses of $4.6 million were flat in comparison to the same period in 2007. For the six months ended June 30, 2008, SG&A increased 11% to $11.1 million compared to $10.0 million for the same period in 2007. The increase was primarily due to negative foreign exchange impact of a weaker U.S. dollar on our Canadian dollar denominated expenses.
Litigation
In May 2008, we received the arbitrator’s decision in relation to our dispute with Biolitec over the Distribution, Supply and Service Agreement between QLT Therapeutics, Inc. and Biolitec. As a result, in June 2008, we paid $0.9 million to Biolitec and recorded a charge of the same amount. The litigation charge in the second quarter of 2007 resulted from the damage award imposed by the Court in relation to the patent litigation with MEEI. See Note 13 — Contingencies in the “Notes to Unaudited Condensed Consolidated Financial Statements”.
Restructuring Charge
In January 2008, we restructured our operations in order to concentrate our resources on Visudyne, and on our clinical development programs related to our proprietary punctal plug delivery technology and our photodynamic therapy dermatology technology (Lemuteporfin). (See Recent Developments above.) We have provided or will be providing approximately 115 employees with severance and support to assist with outplacement and recorded $9.1 million of restructuring charges in the six months ended June 30, 2008, which included a property, plant and equipment impairment charge of $1.5 million. We expect to record additional restructuring charges of approximately $0.7 to $1.0

million in 2008 related to severance, termination benefits and other costs as we complete final activities associated with this restructuring. We anticipate paying most amounts by the end of 2008. Annual operating savings as a result of this restructuring are expected to be approximately $11.0 million.
For the three and six months ended June 30, 2007, restructuring charges of $0.1 million and $0.5 million, respectively, represent the remaining effects of the restructurings that occurred in the fourth quarters of 2005 and 2006.
Investment and Other Income (Expense)
Net Foreign Exchange (Losses) Gains
Net foreign exchange gains comprise gains from the impact of foreign exchange fluctuation on our cash and cash equivalents, restricted cash, derivative financial instruments, foreign currency receivables, foreign currency payables or accruals, and U.S. dollar denominated convertible debt. See “Liquidity and Capital Resources – Interest and Foreign Exchange Rates.”

Interest Income
For the three months ended June 30, 2008, interest income decreased 53% to $1.6 million compared to $3.4 million for the same period in 2007. For the six months ended June 30, 2007, interest income decreased from $7.3 million to $3.9 million when compared to the same period in 2007. The decrease was primarily due to a decline in interest rates and a lower cash balance in 2008 as a result of the cash expended in our acquisition of ForSight Newco II (now QLT Plug Delivery, Inc.) in October 2007 and the Eligard patent litigation settlement payment in February 2007 in connection with the TAP litigation.
Interest Expense
For the three and six month periods ended June 30, 2008, $3.0 million and $6.1 million of interest expense, respectively, comprised interest accrued on the 3% convertible senior notes issued on August 15, 2003, amortization of deferred financing expenses related to the placement of these notes and, beginning in the third quarter of 2007, interest expense on the post judgment accrued liability associated with the MEEI patent litigation damage award currently pending appeal. For the three and six month periods ended June 30, 2008 there was $1.4 million and $2.8 million of interest, respectively, related to the MEEI patent litigation included within interest expense.
(Loss) income from Discontinued Operations
As a result of our comprehensive business and portfolio review, we initiated a strategic restructuring of our operations in January 2008 in order to concentrate our resources on Visudyne and on our clinical development programs related to our punctal plug delivery technology and our photodynamic therapy dermatology technology (Lemuteporfin). See Recent Developments above. Our restructuring plan provides for the sale of the land and building associated with our corporate headquarters in Vancouver, British Columbia, and the assets of QLT USA, our wholly-owned U.S. subsidiary, whose primary assets include the Eligard product line for prostate cancer and the Atrigel drug delivery system. Assets related to Aczone were sold by QLT USA to Allergan Sales, LLC, a wholly-owned subsidiary of Allergan, Inc., in July 2008. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”, the Eligard, Aczone, and Atrigel products were accounted for as discontinued operations. Accordingly, the results of operations related to these products were excluded from continuing operations and reported as discontinued operations for the current and prior periods. In addition, the long-term assets included as part of this divestiture have been reclassified as held for sale in the Condensed Consolidated Balance Sheet.

Loss from discontinued operations for the three months ended June 30, 2008 was $0.6 million compared to income of $2.1 million in the same period in 2007. For the six months ended June 30, 2008, income from discontinued operations decreased by 57% to $1.5 million compared to $3.5 million for the same period in 2007. The decrease was primarily due to a $5.5 million ($3.5 million, net of tax) inventory write-down of Aczone raw material not included in the sale of the Aczone assets to Allergan Sales, LLC and a $3.5 million ($2.2 million, net of income tax) provision for a potential retroactive pricing rebate on certain sales of Eligard from 2004 to the second quarter of 2008, offset by higher Eligard sales and reduced R&D spending on Atrigel projects.
LIQUIDITY AND CAPITAL RESOURCES
We have financed operations, product development and capital expenditures primarily through proceeds from our commercial operations, public and private sales of equity securities, private placement of convertible senior notes, licensing and collaborative funding arrangements, sale of non-core assets and interest income.
The primary drivers of our operating cash flows during the three and six months ended June 30, 2008 were cash payments related to the following: restructuring expenses, R&D activities, SG&A expenses, raw material purchases, manufacturing costs related to the production of Eligard and interest expense related to our convertible notes, offset by cash receipts from product revenues, royalties, interest income and release of a holdback from escrow related to the sale of our generic dermatology and dental businesses in December 2006.
For the three months ended June 30, 2008, we generated $0.9 million of cash from operations as compared to $0.2 million for the same period in 2007. The $0.7 million positive cash flow variance is primarily attributable to:
• A positive cash flow variance from lower operating and inventory related expenditures of $13.6 million;

• A positive cash flow variance from lower purchase of trading securities of $5.9 million;

• A negative cash flow variance from lower interest income and higher foreign exchange losses of $3.9 million; and

• A negative cash flow variance from lower cash receipts from product sales, royalties and milestones of $14.9 million.
During the three months ended June 30, 2008, the disposal of property, plant and equipment of $0.1 million accounted for the most significant cash flows provided by investing activities offset by capital expenditures.
For the three months ended June 30, 2008, there were no cash flows provided by financing activities.
For the six months ended June 30, 2008, we used $5.3 million of cash in operations as compared to $49.8 million for the same period in 2007. The $44.5 million positive cash flow variance is primarily attributable to:
• A positive cash flow variance from lower litigation payment as 2007 included the TAP litigation payment of $112.5 million;

• A positive cash flow variance from lower operating and inventory related expenditures of $16.0 million;

• A negative cash flow variance from higher restructuring costs of $3.6 million;

• A negative cash flow variance from lower investment and other income of $3.7 million;

• A negative cash flow variance from lower cash receipts from product sales, royalties and milestones of $25.7 million; and

• A negative cash flow variance from lower cash receipts from the sale of trading securities of $52.4 million.
During the six months ended June 30, 2008, a decrease in restricted cash of $2.3 million and the disposal of property, plant and equipment of $0.1 million accounted for the most significant cash flows provided by investing activities offset by capital expenditures. We used $0.2 million for the purchase of property, plant and equipment and other acquisition related costs.

CONF CALL

Therese Hayes

If you have not yet received the copy of our press release, you can find it by visiting our website at www.qltinc.com. The conference call is being webcast live and will be available on our website for the next 30 days. Presenting today is Bob Butchofsky, our President and CEO and Cameron Nelson, our CFO. Before I turn the call over to Bob, I would like to take a few moments to go over the Safe Harbor Statement. I need to remind you that certain statements in this conference call have forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and constitute forward-looking information within the meaning of Canadian Securities laws.

Forward-looking statements declared but are not limited to our financial projections, statements relating to our clinical development plans, our expectations for timing and results of studies on combination therapy and other clinical programs. Statements relating to market share and success for our products and technologies, statements relating to a restructuring, the investment of assets and return of any proceeds to shareholders and statements which contain language such as believe, goal, future, projects, expects and outlook in similar expression. Forward-looking statements are predictions only which involve known and unknown risks and uncertainties and other factors and they cause actual results to be materially different from those expressed in such statements.

Many such risks and uncertainties are taken into account as part of our assumptions underlying this forward-looking statements including but not limited to our future operating results and uncertain and they are likely to fluctuate. Currency fluctuations may impact financial results. The risks that future sales per products maybe less than unexpected, uncertainties related to costs and success of R&D, commercialization of products and litigation and certainly related to the timing and ability to invest assets and accept terms and prices and other future unknown liabilities and other factors including those described in QLT's annual report on form 10-K, quarterly reports on form 10-Q and other filings at the US and Canadian securities regulatory authorities.

Forward-looking statements are based on the current expectation of QLT and QLT does not assume any obligation to update such information to reflect later events or developments except as required by law.

And with that, I will turn the call over to Bob.

Robert Butchofsky

Therese, thanks for your help during your tenure at QLT. We are excited to update you on the progress we made since our last conference call in April including our ongoing restructuring efforts and some of the events since we have made in our clinical development program. Following my remarks, I will turn the call over to Cam who will review our financial results for the second quarter and then we will go to questions and answers.

One of our greatest accomplishments this past quarter was the progress we made on restructuring the Company which I like to take a few moments to update you on. In June, we signed an agreement to sell Aczone to Allergan, the deal which we recently completed. We show that our clinical and regulatory strategy pursued the removal of the blood test requirement for all patients treated with Aczone were validated by the $150 million payment we recently received from Allergan. In addition, we are in a process of divesting our corporate headquarters and land in Vancouver. Our potential buyers continuing with their due diligence on their potential purchase and we anticipate that we will be able to close this deal in the near future.

In terms of the other assets we are divesting, Eligard and the Atrigel platform, we remained much focused on divesting these assets for the most value we can, as soon as possible. We are currently in discussions with potential suitors to divest these assets and we look forward to providing you with additional information as soon as possible. As I mentioned in our last call, we hope you can appreciate that we are unable to provide you with much more clarity on either the timing or the valuation of the remaining asset sales as each asset sale is a competitive process. The last thing I want to mention before I move on is to inform you that the 45% headcount reductions we announced earlier this year have largely been completed. We expect further reductions in headcount as asset sales are completed and as we simplify and focus our remaining business.

Now, I want to turn to product sales for Visudyne and Eligard. Global Visudyne sales in the second quarter were $40.7 million which is a quarter-over-quarter increase of approximately 12% and it is the first meaningful quarter-over-quarter gain we had in Visudyne in over three years. Cam will highlight the sales breakdown in his section of the call but we were pleased with the quarter and continue to remain on track to meet our yearend Visudyne sales guidance of $145 million to $160 million although we expect to see the usual seasonal dip in Visudyne sales in the third quarter with the rebound in the fourth quarter.

The RADICAL study which is Visudyne followed by an anti-VEGF, this is a combination trial, it is on track. We anticipate that the six-month data results from this phase II study will be released in the fourth quarter as we completed enrolment as announced on May 5. Novartis has two ongoing combination studies which are also progressing. The 12-month data from the MONTBLANC study which is fully enrolled is expected in the first half of 2009 and enrolment in the second Novartis-sponsored study called DENALI is nearing completion and the study is still anticipated to report data in the second half of 2009.

As many of you already know, we believe that Visudyne market share could eventually begin to rise if results from some of these controlled clinical trials indicate that use of Visudyne followed by one or more anti-VGEF agents leads to improve vision, fewer number of treatments which really should result in a pharmaco-economic benefit of reduced cost and finally, if the data we generate support a label change.

Now, turning to Eligard. We continue to be encouraged by growing Eligard sales. Worldwide sales in the second quarter were $60.3 million with growth of about 34% from last year. The majority of our sales growth was driven by the six-month formulation product sales in Europe which is still on the launch mode. Clearly, the $10 million incremental quarter-over-quarter growth in the second quarter is something that we are pleased to highlight on our call today.

Now, I want to turn to the pipeline. I want to start on the clinical development program for lemuteporfin or QLT 0074. On our last call, we said that we have plans to conduct proof of concepts that is using two different formulations of QLT 0074 in acne patients. Recall that we have in development an IV formulation as well as a topically applied formulation of this compound and that we have presented data showing that the molecule localizes in human sebaceous glands. During the second quarter, we enrolled acne patients and a proof of concept study with the IV formulation. This study was designed to see what impact activation of QLT 0074 on the patients back have on both the reduction in acne lesions and on the patients' sebaceous glands following drug activation with varying intensities of light at various time points.

We recently performed an analysis of this data that showed promise for the IV formulation of lemuteporfin but did not meet the high therapeutic bar that QLT had set internally for this program. As a result, we have decided to halt our current clinical development plans for the use of lemuteporfin for acne. Halting our current clinical developing plan will allow us to conserve our projected cost for this program although we are taking a path that we feel as prudent, we still believe that there is value to be unlocked from lemuteporfin and we will continue to consider other development alternatives for the drug.

Now, I want to turn to the program that will be the focus of our ongoing R&D efforts, the punctal plug program. I continue to be excited by this technology and considered we are fortunate to have found and acquired this technology last October from the ForSight Labs. We took this program on early in its development cycle; we are adding value to the program and learning more about the drug allusion and plug retention on a daily basis. We are also working diligently to expand, strengthen and advance our IP portfolio including the filing of new patent applications around our punctal plug program. We believe we are well positioned to capitalize on our first mover advantage with this technology and all of those who have spoken would know I am a believer of this platform.

In May, we announced results from a proof of concept trial in five patients or in 10 eyes with glaucoma or ocular hypertension. The single center study was designed to determine and sustain the administration of latanoprost using the Company's punctal plug illusion technology could lead to reduction and intraocular pressure or IOP over 90 days when administered using a conventional punctal plug. The conventional plug design is an already approved and widely used technology but our small study was the first human trial using the punctal plug as a drug delivery system.

The trial's primary efficacy endpoint was measurement of IOP. At baseline, the main IOP was approximately 23 mmHg for the 10 eyes treated. At the 90-day follow up, the main IOP was reduced to approximately 17 mmHg for the 6 eyes that remained. Data from two patients were excluded due to the loss of their plugs and there were no reported significant adverse events. All patients in this trial received conventional plugs and a loss of plug is consistent with what we would expect given historical retention rates on commercially available plugs.

Despite this small patient group, we were pleased that the plugs demonstrated that there was a clinically meaningful reduction in IOP and gave us an early indication that our illusion technology may provide a therapeutic benefit for patients with glaucoma. We are pleased to report that our CORE study which is a randomized double-mask phase II trial just completed enrolment of 60 patients with glaucoma and ocular hypertension. The trial had a 90-day follow up so the last patient visit should be in October and you may expect to be reporting data shortly after thereafter.

As a reminder, CORE is designed to evaluate whether our proprietary drug illusion technology leads to a therapeutic drop in IOP and if so, which of the three different formulations of latanoprost offers the best risk-benefit ratio to proceed into further development trials. So, in summary, the CORE trial will help us determine the drug concentration for later development and it is really a focus on the drug illusion aspect of this technology. There is an additional aspect to our program mainly the design of the proprietary punctal plug that is retained comfortably in a higher percentage of patients for 90 days.

We continue to evaluate and test our proprietary plug designs in human trials and we continue to evaluate whether these may offer a benefit over commercially available plugs. We anticipate further phase II trials to asses our proprietary plug design with our drug illusion technology. By conducting these trials, we hope to address all possible questions and technical hurdles to be fully prepared to move in to phase III development which we estimate will be next year. We believe this clinical strategy gives us the best probability of success.

Another CORE ophthalmology opportunity we are moving forward with is our synthetic retinoid drug program. For those of you who are new to the story, in 2006 QLT entered into an exclusive worldwide co-development and licensing agreement with Retinagenix LLC to develop active synthetic retinoid products for the treatment of degenerative retinal diseases. We have filed the clinical trial application with the therapeutic products director in Canada and this is somewhat similar to an IND filing in the US.

We are specifically looking for the retinoid to treat a condition called Leber Congenital Amaurosis or LCA. Our preclinical work has provided early indication that orally administered synthetic retinoid drugs may cause long lasting restoration of retinal function. LCA is an inherited retinal degenerative disease characterized by severe loss of vision at birth. This is very interesting opportunity for us as there are no current treatments on the market and this would potentially be a candidate for this sight robbing disease. Turning now briefly to other issues.

Our litigation with Massachusetts Eye and Ear Infirmary for appeal of the July 2007 court ruling that found QLT liable for unfair trade practices in connection with the 349 Patent still ongoing. Oral arguments are now being scheduled for September and we will update you with any material developments in this litigation until its final resolution.

So, in short we are extremely pleased with the performance of our second quarter. The QLT team has done an excellent job of executing on the advancement of Aczone and is rigorously working on completing the remainder of our non-core asset investitures. Importantly, we are excited that we are moving toward our goal of becoming a leaner company with the punctal plug development program our highest development priority but also with the retinoid program poised to move into clinical trials. We look forward to reporting the RADICAL results before yearend and using the revenue stream for Visudyne to help fund operations.

With that, I will turn it over to Cam to go to the financials for the quarter.

Cameron Nelson

We had a very positive second quarter in terms of end-user sales with both of our marketed compound showing strong quarter-over-quarter growth. I would like to start by outlining some details about end-user sales starting with Visudyne. The regional split for second quarter Visudyne sales was US, $10.1 million; Europe, $14.3 million and rest of the world $16.3 million, for total worldwide sales of $40.7 million.

Sequentially, the worldwide sales increased from the first quarter to the second quarter of 11.5% was broad base as US sales were up 8.8%, sales in Europe were up 9.3% and sales outside of the US and Europe were up 15.3%. Compared to the 2007 second quarter, sales dropped 31.5% with US sales down almost 2% while EU sales fell 52% and rest of the world sales dropped 16%. In terms of foreign currency impact, the US dollar continued to weaken during the second quarter which helped our reported sales. Sequentially, compared to the first quarter, FX added about $600,000 to sales. Compared to the second quarter of 2007, FX benefited sales by above $3.4 million which means that excluding this FX benefit, worldwide sales would have been down above 37% instead of the 31.5% decline reported.

Finally on US sales, the inventory of distributors increased in the quarter by above 450 vials or roughly 4 days of sales which caused reported sales to be about $0.6 million higher than they would otherwise have been. In terms of end users, sales were about a 111 vials per day in the second quarter, down from the full year average in 2007 of a 121 per day and the Q1 2008 average of 117 per day. So, basically we continue to see relative stability in the US sales when we look at average daily vial sales. Inventory of the distributors in the US is sufficient to cover about two weeks of supply now.

Now, looking briefly at Eligard, sales in the quarter of $60.3 million were up 34.9% from last year and up almost 20% sequentially from the first quarter. In the US, sales of $19.9 million were up 3% from the prior year quarter and up almost 2% from Q1 2008. Outside of the US, sales were up over 59% over the second quarter of 2007 and up over 31% from the first quarter driven by a very strong performance in most major European markets. In total, about half of the $10 million quarter-over-quarter increase in worldwide sales was due to the ongoing launch and reimbursement of the 6-month Eligard formulation in Europe.

Now, turning to our P&L, as a reminder with the reclassification of our QLT, USA business has discontinued operations, revenue for the quarter now consist entirely of product revenue from Visudyne. For the quarter, revenue from Visudyne was $13.7 million and our share of profits from Visudyne sales was 23.2% which is down 1 percentage point from the level of profitability seen in the second quarter of last year. Before the year, we expect the profit share percentage will be in the low 20s and finally, revenue from Visudyne comprised about $9.4 million of profit share with the balance being reimbursed expenses.

Turning now to expenses, R&D expense came in at $8.1 million for the quarter including stock compensation expense of about $250,000. Also the weakening US dollar had a negative impact on our reported expenses because of significant portion of our expenses are incurred in Canadian dollars. For the second quarter, our R&D expense was above $0.3 million higher than the second quarter of 2007 because of this FX impact. G&A expense in the quarter was $4.6 million which included approximately $0.4 million of stock compensation expense and again on G&A, the weakening US dollar added above $0.3 million to the 2008 second quarter spend compared to the prior year quarter.

Still on expenses, I want to point out that the 2007 comparatives in our current results have been reinstated to conform to our current discontinued operations reporting. So, our reported R&D expense in Q2 '08 of $8.1 million compares to $11.1 million that we actually reported a year ago in our results for Q2 '07. Similarly, in G&A, our reported expense in Q2 '08 are $4.6 million compares to $5.6 million that was reported a year ago. When you take this report and change into account, our combined spending for R&D and G&A was down about 24% compared to the second quarter last year.

Moving on, we recorded another $1.7 million in the restructuring expense in the quarter bringing the year-to-date total for just over $9 million. On the restructuring charge, we are estimating that the charge for the rest of the year will be less than a million dollars as most of the restructuring announced in January is now complete and to be clear, this remaining charge does not include any amounts related to further restructurings above and beyond those already announced that will occur after completion of our remaining asset divestments. Moving on, as I have the past three quarters, I will remind you of the two places that the MEEI judgment impact to P&L.

First, we have an expense line on the P&L called accrued cost of sales re MEEI which captures the ongoing damage award of 3.01% of worldwide drug sales of Visudyne. In the second quarter of 2008, discharge was $1.2 million. The second place, we have an interest expense that is accruing on the amount of July damage award and on post judgment damage that is at the rate of 5% per year. For the quarter, discharge was approximately $1.4 million. This interest will continue to accrue at the 5% range stipulated by the court prior to the judgment. Both of these items are being backed out in our determination of non-GAAP EPS.

Moving on to income taxes, the effective rate on our pre-tax loss for the quarter was low reflecting the fact that a significant amount of our expenses are incurred in our new US subsidiary QLT Plug Delivery Inc. which is developing the punctal plugs. Because this subsidiary has no revenue and no history of profitability, we are not able to tax the losses incurred there which drags down the effective rate on our overall loss position for the quarter. We continue to expect the effective tax rate for the year to be in the mid to high in range. So, on the bottom line, we reported diluted net loss per common share of $0.10 compared to a net loss of $0.92 in the second quarter last year.

For the quarter, we have included in the press release schedule that reconciles our GAAP EPS to non-GAAP EPS. The significant items excluded in determining non-GAAP EPS were the inventory charges primarily related to the Aczone divestment, accrued cost of goods and interest charges related to the MEEI judgment, stock compensation expense, restructuring and a charge associated with the BioLife arbitration. Non GAAP EPS for the second quarter was $0.02 but if you take out the positive $0.05 impact of our profitable discontinued operations, we would have had a non GAAP loss per share for the quarter of $0.03.

Adjusted EBITDA for the quarter was a loss of $1.1 million and this is derived by starting with continuing operations’ operating profit and then making the same adjustments for non-GAAP EPS as well as adding back depreciation expense. Turning to cash, our cash balance at the end of the quarter was $244.2 million but this total balance included a $123.3 million of restricted cash which was related to the bond posted to stay the execution of judgment pending appeal in the MEEI case.

So, to summarize our cash position, we had $244.2 million of gross cash at the end of June. Offsetting this gross balance, we had a $123.3 million of restricted cash related to the MEEI judgment and convertible note of $172.5 million which we fully expect to be repaying in September this year. So, taking away these two items left us at quarter end with a net cash position of approximately negative $52 million. However, it is important to point out that the June 30 cash balance did not reflect a $150 million that QLT USA received in July for the Aczone divestment.

Adding this cash into the equation, today we have a net positive cash position of almost $100 million and further we expect that completing the divestment of other assets already announced will provide additional strength to our balance sheet and that will allow us to return meaningful proceeds to shareholders. One last thing to note on the quarter, capital expenditures were less than a $100,000. Now, turning briefly to our 2008 guidance, I just want to remind you of a few things.

As we mentioned last quarter, R&D expenses projected to be $29 million to $32 million, down from $46.4 million reported in 2007 which is a decrease of over 30%. The year-over-year comparison is negatively impacted by the weak US dollar. This impact makes the 2008 guidance about a million dollars higher than it would have been if 2000 average rates occurred in 2008. Also we are currently evaluating the spending related to the lemuteporfin program and we will update you if there is any impact to our R&D guidance. On G&A expense, our projection of $19 million to $21 million is down from $27.4 million reported in 2008 which is a drop of approximately 25%.

Within G&A, the negative impact of the weakened US dollar adds about a million dollars to the year-over-year comparison. G&A expense in 2008 still include significant legal fees related to ongoing litigation, fees related to divestment activities and commercial expenses related to Visudyne. We do expect that G&A in the second half of '08 will approximate the run rate that was established in the second quarter. One last thing I would like to comment on is taxes related to our QLT USA act of divestment. We have approximately $230 million of net operating loss carried forwards that maybe available to shield QLT USA's operating profit and gains on individual asset sales from QLT USA.

Just a couple of points here, first point is that the complicated tax environment and the broad spectrum of possible deal structures mean that it is virtually impossible to provide accurate tax guidance before transactions occur. The divestiture of the remaining QLT USA assets could range from a sale of shares for the whole subsidiary. In other words, the shares of Atrix, now QLT USA that we bought in 2004, the individual asset divestitures to straight royalty deals where only cash flows are signed and no assets are actually transferred. The second thing on taxes is that because of the mechanics and complexity of tax rules, you generally cannot look at a single transaction in isolation.

Income taxes are computed and based on the look back of the annual results of the company, in this case QLT USA and the annual results will reflect the total of the results of operations as well as the impact of all asset divestments in the period and the potential form of each divestment. Our goal in the divestment process continues to be to maximize after tax cash returns to our company and we continue to work closely with the advisers in this regard. So, summing up, we had a strong performance from Visudyne and Eligard in the quarter and after the convertible debt is repaid, we will have a very healthy balance sheet with approximately $100 million of cash.

And with that, I will turn it back to Bob for some closing comments.

Robert Butchofsky

We did have a very strong quarter with Visudyne and Eligard. We are pleased with the quarter-over-quarter gains in both of the compounds. We definitely strengthened our balance sheet up with the closure of the Aczone deal. We have other asset deals to complete and we are working diligently on those as well as moving forward on the clinical programs with punctal plug read out probably in the fourth quarter and the retinoid program moving in to the side and results from the RADICAL study in the fourth quarter as well.

So, with that, we can go to questions.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

975 Views