<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                           COMMISSION FILE NO. 0-17082

                                    QLT INC.
             (Exact Name of Registrant as Specified in its Charter)

BRITISH COLUMBIA, CANADA                                     N/A
(State or Other Jurisdiction of Incorporation or             (I.R.S. Employer
Organization)                                                Identification No.)

887 GREAT NORTHERN WAY, VANCOUVER, B.C., CANADA             V5T 4T5

(Address of principal executive offices)                    (Zip Code)

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

                    Securities registered pursuant to Section
                               12(b) of the Act:
                                      NONE

                    Securities registered pursuant to Section
                               12(g) of the Act:
                        COMMON SHARES, WITHOUT PAR VALUE
                          COMMON SHARE PURCHASE RIGHTS
                                (Title of class)

                              --------------------

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes  [X]   No  [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

     Yes  [X]   No  [ ]

     As of June 28, 2002, the aggregate market value of the common shares held
by non-affiliates of the registrant (based on the last reported sale price of
the common shares of U.S.$ 13.35, as reported on The Nasdaq Stock Market) was
approximately U.S.$ 903,914,216.

     As of February 28, 2003, the registrant had 68,560,793 outstanding common
shares.


================================================================================


<PAGE>





                       DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the definitive proxy statement for use in connection with the
annual meeting of shareholders to be held on May 22, 2003, including information
as to directors' and officers' remuneration, principal holders of the
registrant's common shares, options to purchase common shares and interests of
management and others in material transactions, which proxy statement will be
filed with the Securities and Exchange Commission within 120 days after December
31, 2002, are incorporated by reference into Part III of this Report. A copy of
the proxy statement may be obtained upon written request to the Corporate
Secretary, QLT Inc., 887 Great Northern Way, Vancouver, British Columbia, Canada
V5T 4T5.

CURRENCY AND ACCOUNTING STANDARD

In this Annual Report on Form 10-K all dollar amounts are in U.S. dollars,
except where otherwise stated, and financial reporting is made in accordance
with U.S. generally accepted accounting principles ("U.S. GAAP"). Effective
December 31, 2002, the Company adopted U.S. GAAP as its primary basis of
disclosure on Form 10-K. In addition, on December 31, 2002, the Company adopted
the U.S. dollar as its reporting currency. In the past the Company reported in
Canadian dollars and in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP").

The Company continues to maintain the Canadian dollar as its functional
currency.

The Company has also prepared consolidated financial statements in accordance
with Canadian GAAP, which are available on the Company's website at:
www.qltinc.com.


EXCHANGE RATE

    The table below shows relevant exchange rates which approximate the noon
buying rates in New York City as reported by the Federal Reserve Bank of New
York for cable transfers expressed in Canadian dollars for the five most recent
fiscal years of the Company.


<TABLE>
<CAPTION>
                                                          FISCAL YEAR ENDED DECEMBER 31,
                                                ---------------------------------------------------
                                                  1998      1999       2000       2001       2002
                                                --------  --------   --------   --------   --------
<S>                                           <C>       <C>        <C>        <C>        <C>     
                High.....................       $ 1.5770  $ 1.5302   $ 1.5600   $ 1.6023   $ 1.6128
                Low......................         1.4075    1.4440     1.4350     1.4933     1.5108
                Average..................         1.4836    1.4858     1.4855     1.5487     1.5704
                Period End...............         1.5375    1.4440     1.4995     1.5925     1.5800

</TABLE>



               NOTICE REGARDING WEBSITE ACCESS TO COMPANY REPORTS

The Company makes available on its website its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments
thereto, as soon as reasonably practicable after such material is electronically
filed with the United States Securities and Exchange Commission. QLT's website
address is: www.qltinc.com.



<PAGE>


                                    QLT INC.

                           ANNUAL REPORT ON FORM 10-K
                                DECEMBER 31, 2002


                                TABLE OF CONTENTS


<TABLE>

<S>                                                                                                              <C>   

Item 1.  BUSINESS.................................................................................................. 1


Item 2.  PROPERTIES................................................................................................28


Item 3.  LEGAL PROCEEDINGS.........................................................................................28


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................30


Item 5.  MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS.................................31


Item 6.  SELECTED FINANCIAL DATA...................................................................................38


Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................39


Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................................53


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................................54


Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE......................77


Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................................78


Item 11. EXECUTIVE COMPENSATION....................................................................................78


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................78


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................79


Item 14. CONTROLS AND PROCEDURES...................................................................................79


Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...........................................80


</TABLE>






<PAGE>

                                    QLT INC.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements of QLT Inc.
("QLT") within the meaning of the Private Securities Litigation Reform Act of
1995, which involve known and unknown risks, uncertainties and other factors
which may cause our actual results to differ materially from any future results,
performance or achievements expressed or implied by such statements.
Forward-looking statements include, but are not limited to, those with respect
to: anticipated levels of sales of Visudyne(R), including patient and physician
demand for Visudyne therapy, anticipated future operating results, anticipated
timing for and receipt of further reimbursement approvals for Visudyne therapy
and QLT's other products, the anticipated outcome of pending patent and
securities litigation against QLT, the anticipated timing and progress of
clinical trials, the anticipated timing of regulatory submissions for expanded
uses for Visudyne and for QLT's other products, including tariquidar, and the
anticipated timing and receipt of regulatory approvals for expanded uses for
Visudyne and for QLT's other products, including tariquidar. These statements
are predictions only and actual events or our actual results may differ
materially. Factors that could cause such actual events or our actual results to
differ materially from any future results expressed or implied by such
forward-looking statements include, but are not limited to, the ability and
efforts of QLT's alliance partner, Novartis Ophthalmics AG, to commercialize and
market Visudyne, the outcome of pending patent and securities litigation against
QLT, QLT's ability to maintain and expand its intellectual property position,
the timing and success of planned or existing clinical trials for Visudyne and
for QLT's other products, including tariquidar; the outcome of QLT's
applications for regulatory approvals for expanded uses for Visudyne and for
QLT's other products, including tariquidar, the successful development or
acquisition of complementary or supplementary products or product candidates,
technologies or businesses, as well as the risk factors described below under
the headings "Business -- Risk Factors", "Legal Proceedings", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the "Notes to the Consolidated Financial Statements".


                                     PART I


ITEM 1.  BUSINESS

OVERVIEW

    QLT is a bio-pharmaceutical company engaged in the development and
commercialization of innovative products in ophthalmology and oncology and in
other fields where the product can be marketed by a focussed specialty sales and
marketing team. QLT was incorporated in 1981 under the laws of the Province of
British Columbia. QLT is a pioneer in the field of photodynamic therapy, a field
of medicine that uses photosensitizers (light-activated drugs) in the treatment
of disease. QLT is also actively developing pharmaceutical products that do not
employ photodynamic therapy.

    Visudyne(R), QLT's commercial product, is a photosensitizer used to treat
choroidal neovascularization ("CNV") in patients with the wet form of
age-related macular degeneration ("AMD"), the leading cause of severe vision
loss in people over the age of 50 in North America and Europe, as well as other
ocular conditions. Visudyne has been approved in over 65 countries, including
the United States, Canada and those of the European Union, for the treatment of
predominantly classic subfoveal CNV in AMD. In addition, Visudyne has been
approved in over 50 countries for extended indications, including occult CNV in
the European Union, Australia and New Zealand, CNV due to pathologic myopia
("PM") in the United States and the European Union and CNV due to presumed
ocular histoplasmosis syndrome ("OHS") in the United States.

    QLT is currently conducting clinical trials of tariquidar, a new compound
which QLT in-licensed in 2001. One of the major barriers to successful cancer
treatment is the development of resistance by cancer cells to several drugs used
in chemotherapy, which is known as multi-drug resistance, or MDR. The current
clinical trials are determining the potential of tariquidar, which targets the
most common form of MDR, to increase the efficacy of chemotherapy treatment.
Phase III studies began in 2002 to assess tariquidar in the treatment of
non-small cell lung cancer, the most common form of lung cancer. A Phase II
study of tariquidar in the treatment of refractory breast cancer is also
ongoing. (See -"Non-PDT Products- Tariquidar").



<PAGE>

    QLT is evaluating its proprietary photosensitizer Visudyne (referred to as
verteporfin in respect of indications other than ophthalmic) for the treatment
of multiple basal cell carcinoma (a form of non-melanoma skin cancer), and the
proprietary photosensitizer QLT0074 in the treatment of benign prostatic
hyperplasia ("BPH"), the most common prostatic disease, and androgenetic
alopecia (male pattern baldness).

     In addition to developing its proprietary PDT products in new indications,
and developing tariquidar, QLT is researching and developing other products by
itself and in collaboration with other companies for the treatment of cancer,
immune disorders and other conditions. The Company continues to seek growth
opportunities to build its product pipeline by developing new indications for
Visudyne, progressing with both early and late stage programs, and examining
potential strategic acquisitions of products, product candidates, technologies
or other businesses.

    References in this Form 10-K to "QLT" and the "Company" include QLT Inc.
and/or one or more of its subsidiaries, unless the context indicates otherwise.





                                       2

<PAGE>


                     PRODUCTS APPROVED OR IN DEVELOPMENT (1)


<TABLE>
<CAPTION>

       PRODUCT/INDICATION                               LOCATION(S)                       REGULATORY STATUS
       ------------------                               -----------                       -----------------

<S>                                    <C>                                              <C>                     
VISUDYNE(R)

   Predominantly classic subfoveal        Over 65 countries including the United          Approved
   choroidal neovascularization ("CNV")   States, Canada, and those of the European
   in age-related macular degeneration    Union (2)
   ("AMD") ...........................

     Subfoveal CNV in AMD.............    Japan                                           Application for Marketing
                                                                                          Authorization  submitted

   Occult with no classic subfoveal CNV   Over 30 countries including Australia, New      Approved
   in AMD.............................    Zealand, and those of the European Union


                                          Canada and Switzerland                          Application for Marketing
                                                                                          Authorization
                                                                                          submitted

                                          United States                                   Phase III(3)
                                                                                          ongoing

   Subfoveal CNV due to pathologic        Over 50 countries including the United          Approved
   myopia.............................    States, Canada, and those of the European
                                          Union

   Predominantly classic subfoveal CNV    United States                                   Approved
   due to presumed ocular
   histoplasmosis syndrome............

     Minimally Classic CNV in AMD...      United States, Canada, European Union           Phase II ongoing

   Diabetic macular edema.............    United States                                   Phase I/II ongoing


VERTEPORFIN (4)

   Multiple basal cell carcinoma......    United States, Canada                           Phase III ongoing(5)



TARIQUIDAR(6)

   Non-small cell lung cancer.........    United States, Canada, European Union           Phase III (7)
                                          and Russia                                      ongoing

   Breast cancer......................    United States                                   Phase II(8)
                                                                                          ongoing

QLT0074

   Benign prostatic hyperplasia.......    United States, Canada                           Phase I/II(9)
                                                                                          ongoing

   Androgenetic alopecia..............    United States, Canada                           Phase I/II(10)
                                                                                          ongoing

</TABLE>


---------



                                       3

<PAGE>

(1) The terms used in the above table and elsewhere are defined in this Annual
Report on Form 10-K. In particular, see "-- Government Regulation". 

(2) The European Union includes Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain,
Sweden and the United Kingdom.

(3) This study has been initiated and enrollment is expected to be completed by
the end of 2003. Approximately 360 patients will be enrolled at up to 43 centers
in North America.

(4) Verteporfin is marketed under the tradename Visudyne(R) for ophthalmic
indications and is referred to as verteporfin in this Annual Report on Form 10-K
for non-ophthalmic indications.

(5) The Phase III study in multiple basal cell carcinoma commenced in October of
2002.

(6) Tariquidar has been accepted both as the United States Adopted Name (USAN)
and the Recommended International Nonproprietary Name (INN) for XR9576.

(7) This study was commenced in June 2002; on February 20, 2003, enrollment was
temporarily halted pending review of interim safety and efficacy analysis of
data from 150 patients enrolled in the trial, which is expected to occur in May
and June of 2003. (See "Non-PDT Products- Tariquidar").

(8) This study commenced in December 2001.

(9) This study commenced in March of 2003. It is a proof of concept study
intended to evaluate safety and preliminary efficacy.

(10) This study commenced in the third quarter of 2002. It is a proof of concept
study intended to evaluate safety and preliminary efficacy.


BUSINESS STRATEGY

    QLT's business strategy is to pursue expanded indications for Visudyne
therapy and develop and commercialize other products which can be marketed by a
focussed specialty sales and marketing team, in ophthalmology, oncology and for
other diseases. QLT has expanded its research and development pipeline by
acquiring rights to new product candidates and access to new technologies. QLT
intends to continue to expand its product pipeline by continuing its
in-licensing efforts and pursuing strategic acquisitions.

QLT'S PDT PRODUCTS

BACKGROUND

    Photodynamic therapy or 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. While circulating in the
bloodstream, the photosensitizer attaches itself to molecules called
lipoproteins. Because rapidly-proliferating cells may require greater amounts of
lipoproteins, the photosensitizer may accumulate more quickly and in higher
concentrations in these cells than it does in normal cells. Second, a
pre-calculated 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. Since 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.

    The most commonly noted side effect of photosensitizers is a transient skin
sensitivity to bright light. Recipients of PDT are advised to avoid direct
sunlight (or wear protective clothing) during the period of heightened skin
sensitivity. Patients' indoor activities are unrestricted and patients are
encouraged to undertake activities in ambient light, which helps to bring about
inactivation of residual photosensitizer molecules in the skin by a process
known as photobleaching. The period of skin photosensitivity varies among
different photosensitizers and is related to the dose given.

    For external and ocular PDT applications (including in the treatment of
AMD), non-laser light sources or diode lasers have been developed and are
available to provide the necessary intensity of light required for PDT. For
applications of PDT to internal organs, physicians use lasers and fiber optics
to deliver the appropriate intensity of light to abnormal tissue. The
wavelength, or color, of light is critical to the activation 



                                       4

<PAGE>

of the photosensitizer. Generally, a longer wavelength will penetrate tissue
more deeply and thereby activate the photosensitizer deeper in the target
tissue. See "-- Medical Devices for PDT".

VISUDYNE(R) THERAPY

Visudyne is a photosensitizer developed by QLT and Novartis Ophthalmics AG
("Novartis Ophthalmics"), formerly CIBA Vision, for the treatment of wet AMD,
the leading cause of severe vision loss in people over the age of 50 in North
America and Europe. QLT has been co-developing Visudyne with Novartis
Ophthalmics since 1995 pursuant to a product development, manufacturing and
distribution agreement which created a contractual alliance between the two
companies. Under that alliance, QLT is responsible for manufacturing and product
supply and Novartis Ophthalmics is responsible for sales, marketing and
distribution. In this Annual Report on Form 10K, the "alliance" or the
"Alliance" refers to QLT and Novartis Ophthalmics.

 About Wet AMD

    Wet AMD is 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, 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.

    Wet AMD accounts for approximately 15% of all AMD cases and is responsible
for approximately 90% of the severe vision loss associated with the disease.
Based upon its proprietary market research, QLT estimates that worldwide
approximately 500,000 new cases of wet AMD develop annually, of which 200,000
develop in North America, 200,000 develop in Europe and 100,000 develop in the
remainder of the world. Until Visudyne, no satisfactory treatment existed for
approximately 85% to 90% of wet AMD cases.

Visudyne(R) Approvals

    Predominantly Classic CNV in AMD

     Visudyne has been approved for marketing for predominantly classic
subfoveal CNV in AMD in over 65 countries, including the United States, those of
the European Union, Canada, Australia and New Zealand.

    Visudyne therapy is typically performed as an outpatient procedure with the
goal of stopping or slowing the progression of wet AMD by selectively closing
the abnormal blood vessels that form due to AMD without damaging normal vessels
or photoreceptors.

    In January of 2001, the Centers for Medicare and Medicaid Services ("CMS")
in the United States (formerly the Health Care Financing Administration)
announced their U.S. national coverage policy for Visudyne therapy in patients
with predominantly classic subfoveal CNV secondary to AMD, which policy was
formally issued later that year. In most provinces in Canada reimbursement for
all or part of the Visudyne therapy has been approved. Predominantly classic
reimbursement has also been approved in several countries in Europe, including
France, Germany, Italy and Switzerland.

    CNV due to Pathologic Myopia (PM)

    Pathologic myopia ("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, QLT estimates that the worldwide incidence of CNV
secondary to PM is approximately 50,000 new patients every year. Before
Visudyne, there was no approved treatment for the majority of patients with PM.

    Based on data from the Phase IIIb clinical studies for Visudyne therapy
(referred to as the "VIP Trial" - Verteporfin in Photodynamic Therapy) conducted
by QLT and Novartis Ophthalmics, QLT has received regulatory approval of
Visudyne for the treatment of subfoveal CNV due to PM in over 50 countries,
including the United States, Canada, and those of the European Union.



                                       5

<PAGE>

    CNV due to Presumed Ocular Histoplasmosis Syndrome (OHS)

    Presumed ocular histoplasmosis syndrome ("OHS") is a condition caused by a
fungal infection endemic to certain areas in central and eastern United States.
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.

    Based on data from an open label safety study involving 26 patients with
OHS, the United States Food and Drug Administration (the "FDA") approved
Visudyne for the treatment of subfoveal CNV secondary to OHS in August of 2001.
The results of the open label study showed Visudyne was safe in patients with
OHS and that visual acuity improved from baseline by an average of one line on a
standard eye chart at six months with 27% of patients experiencing a visual
acuity improvement of three lines or more.

Expansion and Improvement of Visudyne Therapy

    QLT and Novartis are engaged in efforts to expand the indications for which
Visudyne is approved to treat other forms of AMD and other ocular diseases. QLT
and Novartis are seeking approval for marketing authorization in Japan for
subfoveal CNV in AMD. The Alliance is also continuing efforts to improve
Visudyne therapy by exploring alternative treatment regimens.

    Japan - Subfoveal CNV in AMD

    QLT and Novartis Ophthalmics are conducting an open label registration study
of Visudyne in Japan in patients with classic-containing subfoveal CNV in AMD.
Enrollment in this Japanese study was completed at the end of 2000 with a total
of 64 patients recruited at five centers. Based on six-month data from this
study, in April of 2002, Novartis Ophthalmics, on behalf of the Alliance,
submitted applications for marketing authorizations for Visudyne therapy for
patients with subfoveal CNV in AMD. A decision on those applications is expected
during 2003.

    Occult with no Classic CNV in AMD (VIP Trial and VIO Investigation)

    In early 2001, QLT and Novartis Ophthalmics announced top-line 24-month
results from the Phase IIIb VIP Trial. Part of the VIP Trial (the "VIP Occult
Trial") was designed to investigate the efficacy and safety of Visudyne therapy
in wet AMD patients mainly with occult lesions ("occult" and "classic" are terms
used to describe different patterns of CNV leakage as seen on fluorescein
angiography). The VIP Occult Trial involved 339 AMD patients treated at 28
centers throughout North America and Europe over a period of 24 months. The
24-month results from the VIP Occult Trial indicated that Visudyne therapy
reduces the risk of both moderate and severe vision loss in an additional
population of patients with wet AMD who had lesions composed of occult CNV
without classic components.

    The VIP Occult Trial included mainly patients with occult CNV without
classic components with presumed recent disease progression, plus some patients
with a component of classic CNV having vision better than 20/40. At the 24-month
examination, 46% of all patients treated with Visudyne therapy lost less than
three lines of vision, or 15 letters, on a standard eye chart (moderate vision
loss) compared to 33% of patients on placebo (p=0.023). With respect to severe
vision loss, 70% of Visudyne treated patients lost less than six lines of
vision, or 30 letters, on a standard eye chart versus 53% of patients on
placebo, representing a difference of 17% (p=0.001). At the 24-month time point,
Visudyne also showed statistically significant outcomes for other visual acuity
endpoints. On average, patients treated with Visudyne received five treatments
during the 24-month period.

    Based on the two-year results of the VIP Occult Trial, during 2002 marketing
authorization for the treatment of occult subfoveal CNV secondary to wet AMD was
obtained for the European Union, Australia, and New Zealand.

    The FDA advised QLT in 2001 that replication of the VIP Occult Trial results
would be required as the FDA considered the results of the VIP Occult Trial
inadequate for expansion of the Visudyne label to occult without classic CNV in
AMD. Accordingly, in response to the FDA's advice, QLT and Novartis 



                                       6

<PAGE>

Ophthalmics initiated a Phase III clinical trial (referred to as the "VIO Study"
- Visudyne in Occult) designed to investigate whether Visudyne therapy
significantly reduces the risk of vision loss compared with placebo treatment in
patients who have occult with no classic subfoveal CNV secondary to AMD.
Approximately 360 patients are being enrolled at approximately 43 centers and
followed for 24 months. Enrollment is expected to be completed by the end of
2003.

    In March of 2002, the Centers for Medicare and Medicaid Services (CMS)
announced that they would not uphold their original intention to expand the
national coverage policy for Visudyne therapy to include reimbursement for
patients with occult only subfoveal CNV secondary to AMD, based on the two-year
results of the VIP Occult Trial. That decision was a reversal from the decision
communicated in the CMS's Decision Memorandum dated October 17, 2001.

    Minimally Classic CNV in AMD (VIM Investigation)

     QLT and Novartis Ophthalmics have initiated a Phase II clinical trial
(referred to as the "VIM Investigation" - Visudyne in Minimally Classic) to
study the efficacy and safety of a reduced light dose in patients with minimally
classic lesions of AMD. The goal of the VIM Investigation is to determine
whether patients with minimally classic subfoveal CNV due to AMD can benefit
from Visudyne therapy. The VIM Investigation is comprised of 117 patients. QLT
and Novartis Ophthalmics announced the six-month results of the VIM
Investigation on December 17, 2002. Early outcomes at six months showed that the
mean change in visual acuity scores of patients in both Visudyne treatment arms
was statistically better than the mean change of those patients who received
placebo. The VIM investigation will continue until the 24 month period to
confirm longer term benefit. The 12-month results of this investigation will be
known during the second quarter of 2003. The development strategy for this
indication is under consideration by the Company and Novartis Ophthalmics.

    Early Retreatment Study (VER Investigation)

    In August of 2002 QLT and Novartis Ophthalmics completed enrollment in Phase
IIIb clinical trials (referred to as the "VER Investigation" - Visudyne Early
Retreatment), designed to investigate the efficacy and safety of earlier
retreatment with Visudyne in patients with predominantly classic subfoveal CNV.

    The VER Investigation will investigate whether optimizing Visudyne treatment
frequency will lead to further improvements in stabilizing vision for aggressive
AMD disease, without adversely affecting the product's safety profile. The VER
Investigation is being conducted at 31 centers throughout North America and
Europe and involves 323 patients. In prior studies with Visudyne, patients were
given treatments of Visudyne every three months in case of leakage from CNV. The
VER Investigation protocol calls for re-evaluation and possible retreatments
with Visudyne every six weeks in the first six months of treatment in case of
leakage from CNV, instead of every three months. It is expected that results
from the VER Investigation will be available in the fourth quarter of 2003.

    Altered/Delayed Light in Occult (VALIO)

    QLT and Novartis Ophthalmics have initiated a Phase II clinical trial
(referred to as the "VALIO Study" - Visudyne with Altered (Delayed) Light In
Occult). The study is designed to investigate whether delaying the time of light
application to 30 minutes after the start of Visudyne infusion will improve
visual and angiographic outcomes in patients with subfoveal occult CNV with no
classic component compared to Visudyne therapy with light application at 15
minutes after the start of infusion. Approximately 60 patients with AMD have
been enrolled at seven centers in the United States and are being followed for a
period of twelve months. QLT and Novartis Opthalmics announced three-month
results in December, 2002. At three months, additional vision benefit over the
standard Visudyne regime was not apparent, results that were not unexpected at
such an early time point. The six-month outcomes are expected to become
available in the first half of 2003, and the 12-month results late in 2003.

    Adjunctive Diclofenac (Voltaren) after Visudyne(R) (ADD-V Study)

    Preclinical research by QLT and Novartis Ophthalmics has shown that
inhibiting the inflammatory responses seen in Visudyne therapy may increase the
benefit of the therapy. QLT and Novartis Ophthalmics 



                                       7

<PAGE>

have initiated a Phase II trial (referred to as the "ADD-V Study" - Adjunctive
Diclofenac (Voltaren) after Visudyne) to determine whether the topical
application of the non-steroidal anti-inflammatory drug diclofenac reduces the
inflammation associated with Visudyne therapy and thereby improves the
treatment. 61 patients have been enrolled at 14 centers in North America.
Three-month results were announced in December, 2002. At three months additional
vision benefit over the standard Visudyne regime was not apparent.

    Diabetic Macular Edema (VIDME Study)

    QLT and Novartis Ophthalmics have initiated a Phase I/II clinical trial
(referred to as the "VIDME Study" - Visudyne In Treatment of Diabetic Macular
Edema). The VIDME Study is designed to assess the safety and preliminary
efficacy of Visudyne therapy in diabetic macular edema. 30 patients with diffuse
diabetic macular edema are enrolled at two centers in the United States and will
be followed for a period of three months. Three-month results from this study
are expected to become available during the first half of 2003.

VERTEPORFIN

Multiple Basal Cell Carcinoma

    QLT has been evaluating verteporfin as an alternative treatment for certain
forms of non-melanoma skin cancer, including multiple basal cell carcinoma
("MBCC"). MBCC is a form of basal cell carcinoma ("BCC") in which patients
present with more than one BCC tumor. Each year over 800,000 cases of BCC are
diagnosed. QLT believes that a small subset of the BCC population who develop
multiple lesions may benefit from PDT with verteporfin.

    The most common cause of BCC is chronic exposure to the sun. As a result,
areas of the body which are most frequently exposed to the sun, including the
face, neck and hands, are among the most likely areas to develop skin cancer
tumors. Some patients develop MBCC due to greater sensitivity to sun exposure
caused by genetic disorders or immunosuppressive therapy following an organ
transplant.

    MBCC is more challenging to treat than single BCC because multiple tumors
have to be treated individually and are therefore more costly and time-consuming
to treat. When patients have a large number of BCCs, individual treatment of
each tumor is sometimes not feasible and dermatologists often have to limit
treatment to selected tumors rather than treating all tumors. Surgical therapy
in patients with MBCC may also not be acceptable to patients because of
undesirable or poor cosmesis. Using PDT with verteporfin to treat MBCC may allow
for the treatment of multiple tumors in one session and may result in more
acceptable cosmesis.

    In October of 2000, QLT announced positive results for its Phase II study
using PDT with verteporfin to treat non-melanoma skin cancer. The open-label
study, conducted in North America, involved 54 patients, with a total of 421
tumors.

    The highest light dose was found to be the most effective, with 98% of the
assessed tumors showing a complete clinical response six months after initial
treatment. There were no systemic safety issues. The most commonly reported
adverse events related to reversible pain at the treatment site. PDT with
verteporfin appears to offer a cosmetic outcome similar to or better than
current standard treatments for non-melanoma skin cancer which result in some
degree of scarring.

    QLT and Novartis Ophthalmics agreed to co-develop verteporfin for
non-melanoma skin cancer and potentially other dermatological conditions in
mid-2001 through their Alliance. In October of 2002, QLT and Novartis
Ophthalmics initiated a Phase III clinical trial of verteporfin for the
treatment of patients with MBCC, with the aim of enrolling 180 patients.
Enrollment has not progessed as quickly as had originally been projected. QLT's
initial estimate for completion of enrollment was the end of 2003; however, that
estimate may have to be revised in the future if the current enrollment rate
continues to be slower than originally expected.



                                       8

<PAGE>

QLT0074

    QLT0074 is a proprietary photosensitizer to which QLT has all rights. QLT is
currently developing QLT0074 for the treatment of benign prostatic hyperplasia
and androgenetic alopecia (male pattern baldness), and is also exploring its
application in other indications.

    In 2001, based on the results of preclinical studies, QLT initiated and
completed a placebo-controlled Phase I study on healthy volunteers of both
genders of QLT0074 administered by single and repeated intravenous infusions.
Results showed that QLT0074 is a potent photosensitizer and is rapidly
eliminated from the human body.

    Particulars of the ongoing and planned clinical studies for QLT0074 are set
out below.

Benign Prostatic Hyperplasia (BPH)

    Benign prostatic hyperplasia ("BPH") is the most common prostatic disease.
According to the United States National Institute of Diabetes and Digestive and
Kidney Diseases, over 50% of men in their sixties and older have symptoms of
BPH. It is a progressive condition that results from an excessive benign growth
of prostatic tissue. The majority of patients with this disease will experience
more or less rapidly developing symptoms of urinary obstruction (lower urinary
tract symptoms) of progressive severity. The management of BPH symptoms
parallels the severity of the symptoms. Initially, watchful waiting is
recommended, followed by pharmacological treatment, minimally invasive therapy,
and finally prostate resection.

    Preclinical studies completed in 2002 support the hypothesis that PDT with
QLT0074 may be useful in the treatment of BPH. In January of 2003 QLT secured
the agreement of the FDA to the start of the first efficacy and safety proof of
concept trial. In March 2003 QLT commenced a Phase I/II proof of concept
clinical study of QLT0074 in BPH to evaluate safety and preliminary efficacy.

Androgenetic Alopecia

    Androgenetic alopecia (male pattern baldness) is a widespread condition for
which many men seek treatment. Present pharmacological therapies have limited
efficacy and have certain limitations or pose inconveniences. Hair transplants
provide satisfactory outcomes but are costly and invasive.

    Preclinical studies conducted in 2001 suggest that under certain conditions,
PDT with QLT0074 may be useful in this indication. QLT commenced a Phase I/II
proof of concept clinical study with QLT0074 to evaluate safety and preliminary
efficacy in October of 2002. Six-month results from the Phase I/II study are
expected to become available in the second quarter of 2003.

NON-PDT PRODUCTS

TARIQUIDAR

Multi-Drug Resistance in Non-Small Cell Lung Cancer and Breast Cancer

    Approximately 30% to 80% of cancers, depending on tumor type, are resistant
or can develop resistance to chemotherapy, leaving patients and doctors with few
options when conventional treatments fail. The most common form of resistance to
chemotherapy is multi-drug resistance ("MDR"), which occurs when chemotherapy
drugs are actively pumped out of tumor cells. MDR is seen with many of the most
widely used chemotherapeutic drugs used in the treatment of common cancers.

    The expulsion of a chemotherapy drug is believed to be due in part to the
over-production in the cancer cell membrane of a protein pump known as
P-glycoprotein (P-gp). The goal of a multi-drug P-gp inhibitor is to effectively
block the P-gp pump, thereby permitting higher concentrations of
chemotherapeutic drug to remain within the tumor cell. If successful, such a
compound would be used in combination with certain chemotherapy drugs to
potentially increase the efficacy of the chemotherapy drugs.



                                       9

<PAGE>

    In August of 2001, QLT entered into an exclusive development and license
agreement with Xenova Limited ("Xenova") in respect of tariquidar (formerly
called "XR9576"), a non-cytotoxic compound designed to inhibit P-gp mediated MDR
in certain common cancer types. Under the terms of the agreement, QLT has the
exclusive right to develop tariquidar in North America and Europe and to market
tariquidar in North America for the treatment of cancer.

    Xenova began Phase IIa trials with tariquidar early in 1999 and completed
them in 2001. In these trials, the pharmacokinetic behaviour of tariquidar was
studied in combination therapy with a range of marketed cancer drugs, namely
vinorelbine, doxorubicin and paclitaxel. The primary purpose of these trials,
which were carried out at a number of centers in the United States and Europe,
was to assess the degree of pharmacokinetic interaction, if any, between
tariquidar and certain cancer drugs. During 2000 and 2001 QLT reported that
minimal clinically significant pharmacokinetic interaction between tariquidar
and widely used chemotherapy drugs was observed in the three Phase IIa trials.

    In June of 2002 QLT commenced two Phase III clinical trials for non-small
cell lung cancer in combination with chemotherapy. At the time enrollment in the
two trials was commenced, QLT expected to enroll approximately 1,000 patients in
over 100 centers in North America, Europe and Russia. The two studies are
randomized, placebo controlled trials using tariquidar in combination with two
of the most commonly used chemotherapy treatment regimes (paclitaxel plus
carboplatin in the trial known as TLC1, and vinorelbine alone, in the trial
known as TLC2). The trials are designed to demonstrate the ability of tariquidar
to enhance the efficacy of chemotherapy agents. Overall survival is the
end-point in both trials.

    In October of 2002, the FDA granted fast track review status to tariquidar
for the treatment of multi-drug resistance in non-small cell lung cancer
patients.

    On February 20, 2003, QLT temporarily halted further enrollment in the two
trials, pursuant to the recommendation of the Data Safety and Monitoring
Committee ("DSMC"), based on safety concerns regarding toxicity levels, pending
an interim analysis of safety and efficacy, on 150 patients in the two trials
(the first 100 in TLC1, and the first 50 in TLC2). The interim analyses are
expected to occur in May of 2003, for TLC1, and June of 2003, for TLC2. Over 350
patients are currently enrolled in the trials. These patients will continue to
be treated in accordance with the trial protocol, also in accordance with the
recommendation of the DSMC. Prior to the temporary enrollment halt, QLT had
expected to complete enrollment in both trials during the fourth quarter of
2003.

    In December of 2001, QLT began enrolling patients into its Phase II clinical
trial of tariquidar for the treatment of refractory breast cancer. This trial
may enroll up to 30 patients. The Company expects to complete enrollment in the
trial by the end of 2003.

STRATEGIC ALLIANCES AND COLLABORATIONS

    Strategic alliances and collaborations are an integral part of QLT's
strategy for the research, development, manufacture and marketing of its
products.

    NOVARTIS OPHTHALMICS. On February 6, 1995, the Company entered into an
agreement (the "NVO Co-Development Agreement") with Novartis Ophthalmics to
pursue worldwide joint development and commercialization of PDT products,
including Visudyne, as potential treatments for certain eye diseases through the
Alliance. Under the terms of that agreement, QLT is responsible for 40% to 50%
of research and development costs for Visudyne, and Novartis Ophthalmics is
responsible for the remaining 50% to 60% of such costs. QLT is responsible for
the manufacturing and product supply of Visudyne and Novartis Ophthalmics is
responsible for sales, marketing and distribution. QLT and Novartis Ophthalmics
share equally the profits realized on revenues from product sales after
deductions for marketing costs and manufacturing costs (including any
third-party royalties).

    On July 23, 2001, the Company and Novartis Ophthalmics entered into an
agreement to amend the NVO Co-Development Agreement to include the
co-development of PDT with verteporfin to treat non-melanoma skin cancer and
other dermatological conditions. Under the terms of the amended NVO
Co-Development Agreement, Novartis Ophthalmics has committed to fund 100% of the
future development costs of verteporfin in non-melanoma skin cancer to a maximum
of $9.7 million or until the filing for marketing 



                                       10

<PAGE>

approval in the United States or the European Union. Thereafter, each of QLT and
Novartis Ophthalmics will be responsible for 50% of any remaining development
costs, and QLT and Novartis Ophthalmics will share equally the profits realized
on revenues from product sales after deductions for marketing costs and
manufacturing costs (including any third-party royalties).

    XENOVA. On August 13, 2001, the Company entered into an exclusive
development and license agreement with Xenova for tariquidar, a P-gp inhibitor
for multi-drug resistance in cancer which has completed Phase II clinical
trials. Under the agreement, QLT assumed responsibility for the continued
development of tariquidar in North America and Europe and acquired marketing
rights for North America. QLT paid Xenova an initial licensing fee of $10
million and agreed to make additional payments up to a maximum of $50 million
upon achievement of certain milestones. If tariquidar is commercialized, the
Company will pay a royalty to Xenova in the range of 15% to 22% based on the
level of North American sales. Under the agreement, Xenova contributes $2
million to QLT in respect of its development efforts during the first two years.

    KINETEK PHARMACEUTICALS, INC. QLT and Kinetek Pharmaceuticals, Inc.
("Kinetek") are collaborating to develop compounds known as signal transduction
inhibitors for the treatment of ocular, immune system and kidney diseases
pursuant to a research and development agreement entered into during 2001. Under
that agreement QLT has an option to obtain an exclusive license for up to five
compounds. Under the terms of the option, the Company will have the right, on
making certain payments, to take over the clinical development and
commercialization of each compound at a specified stage of development. Further
information regarding Kinetek is provided in "Management Discussion and Analysis
- (Writedown) Gain on Investments."

PRODUCT MANUFACTURING

    QLT does not own or operate any manufacturing facilities at present.

    Visudyne is currently manufactured in stages by several contract facilities
located in the U.S., Canada, Europe and Japan. QLT has long-term supply
agreements with Raylo Chemicals, Nippon Fine Chemicals of Japan, Parkedale
Pharmaceuticals, Merck KGaA, Harimex Ligos BV and Sato Pharmaceuticals for
manufacturing activities in the commercial production of Visudyne.

    QLT has entered into a development agreement with R.P. Scherer West, Inc.
(formerly SP Pharmaceuticals L.L.C) in support of a secondary manufacturing
facility for certain activities in the commercial production of Visudyne. That
agreement contemplates the parties entering into a long-term supply agreement;
negotiations of the long-term supply agreement are in progress.

    The key starting materials for the Visudyne manufacturing process are
secured by long-term supply agreements. No significant delays or interruption of
supply have been experienced with respect to the key starting materials for
Visudyne.

    QLT is in the process of finalizing a development agreement with Raylo for
the manufacturing of tariquidar. QLT has entered into a Master Services
Agreement with Hollister-Steir (U.S.A.) for manufacturing tariquidar for
clinical supply.

    QLT's other products are manufactured by various contract facilities in the
U.S., Canada, Europe and Japan.

MEDICAL DEVICES FOR PDT

    An integral component of PDT is the requirement for a medical device or
devices to deliver light to the target tissue to activate the photosensitizer.
QLT leverages the expertise of medical device companies to develop and market
lasers, laser diodes and other photonic devices to use with its drugs. QLT
continues to play an active role with medical device companies in North America
and Europe to ensure the availability of commercial, state-of-the-art light
sources and delivery systems to the medical community. See " -- Government
Regulation".



                                       11

<PAGE>

    Diode laster systems required for Visudyne therapy are manufactured and sold
by two medical device companies, Zeiss-Meditic ("Zeiss") (formerly Carl Zeiss,
Inc.) and Lumenis Ltd. ("Lumenis"), formerly Coherent Inc. The Alliance
collaborates with Lumenis and Zeiss for the supply of lasers for use in
conjunction with Visudyne therapy. Both Lumenis and Zeiss have portable diode
lasers that have been commercially approved for use with Visudyne in the U.S.
and Europe. Approximately 1,700 of these diode lasers have been placed with
medical facilities. With the FDA's approval of the device applications, QLT
transferred ownership of the regulatory approvals for the Lumenis and Zeiss
laser products to the respective companies. See "-- Government Regulation -
Regulation of Combination Products".

PATENTS AND PROPRIETARY RIGHTS

    QLT seeks to protect its proprietary technology through patents and security
measures to the extent it deems appropriate. QLT currently owns or has rights
under a number of patents and patent applications that cover certain of its
technologies and products in the U.S., Canada and other jurisdictions.

    QLT's policy is to file patent applications on a worldwide basis in such
jurisdictions as it deems beneficial depending on the subject matter. QLT also
relies on trade secrets to maintain its competitive position.

    QLT has an exclusive worldwide license from the University of British
Columbia ("UBC") for all of the patents and know-how owned by UBC relating to
verteporfin, QLT0074 and certain additional photosensitizers and their use in
PDT. In the U.S. and other jurisdictions, verteporfin is claimed as a
composition of matter as well as for use in methods to destroy or impair the
function of unwanted cells.

    QLT has numerous U.S. patents issued and many corresponding non-U.S. patents
issued relating to PDT. Some of these patents are general to photoactive agents
and others are limited to the use of verteporfin or QLT0074.

    QLT has an exclusive license from Xenova to certain patent rights related to
tariquidar. The compound tariquidar and methods of using it to modulate
P-gp-mediated multidrug resistance in the treatment of tumors are the subject of
an issued U.S. patent held by Xenova and licensed to QLT. Equivalent patent
applications are pending in many other jurisdictions, including Canada.

    In addition, QLT has several registered trademarks in the U.S. and Canada
and in other jurisdictions.

    QLT indirectly receives government grants and other assistance for certain
of its research and development programs. The manner in which QLT commercializes
inventions developed through government assistance may be subject to certain
restrictions and control by the relevant government-funding agency. QLT does not
believe that any such restrictions will have any material adverse effect on the
commercialization of its products.

    Although a patent has a statutory presumption of validity, the issuance of a
patent is not conclusive as to its validity or as to enforceability of its
claims. Accordingly, there can be no assurance that QLT's patents will afford
legal protection against competitors, nor can there be any assurance that the
patents will not be infringed by others or that others will not obtain patents
that QLT would need to license.

    Unpatented trade secrets, improvements, confidential know-how and continuing
technological innovation are important to QLT's scientific and commercial
success. Although QLT attempts to and will continue to protect its proprietary
information through reliance on trade secret laws and the use of confidentiality
agreements with its corporate partners, collaborators, employees and consultants
and other appropriate means, there can be no assurance these measures
effectively will prevent disclosure of QLT's proprietary information or that
others will not develop independently or obtain access to the same or similar
information or that QLT's competitive position will not be affected adversely
thereby.

    There are two pending lawsuits relating to QLT's rights to two U.S. patents.
See "Legal Proceedings".



                                       12

<PAGE>

GOVERNMENT REGULATION

    OVERVIEW. All drugs developed or marketed in the United States, including
Visudyne, tariquidar and QLT's other products, are subject to extensive and
rigorous regulation by the United States federal government, principally the
FDA, and by state and local governments in the United States. The regulatory
clearance process is lengthy, expensive and uncertain. The Federal Food, Drug,
and Cosmetic Act (the "FDC Act"), and other federal statutes and regulations,
govern or influence the development, design, testing, manufacture, labeling,
storage, approval, advertising, promotion, sale and distribution of such
products. Failure to comply with applicable FDA and other regulatory
requirements can result in sanctions being imposed on QLT or the manufacturers
of its products, including warning letters, fines, product recalls or seizures,
injunctions, refusals to permit products to be imported into or exported out of
the U.S., refusals of the FDA to grant approval of drugs or to allow QLT to
enter into government supply contracts, withdrawals of previously approved
marketing applications and criminal prosecutions.

    In addition to the applicable FDA requirements, QLT is subject to Canadian
regulations governing clinical trials and sales and the regulations in any other
country in which QLT proposes to market drugs. In the EU countries and Canada,
regulatory requirements and approval processes are similar in principle to those
in the United States.

    Depending on the type of drug for which approval is sought, there are
currently two potential tracks for marketing approval in the EU countries:
mutual recognition and the centralized procedure. These review mechanisms may
ultimately lead to approval in all EU countries, but both methods grant each
participating country some decision-making authority in product approval.
Whether or not FDA approval has been obtained, approval of a product by the
comparable regulatory authorities in Europe, Canada and other countries must be
obtained prior to the commencement of marketing of the product in those
countries. The approval process varies from country to country and the time
required may be longer or shorter than that required for FDA approval.
Unapproved new drugs in the U.S. can only be exported from the U.S. to certain
countries if they are approved in the country of import and otherwise comply
with the laws of that country, among other requirements. There can be no
assurance that QLT will be able to obtain necessary U.S., Canadian or foreign
clearances or approvals, where necessary, on a timely basis, if at all, for any
of its products under development, and delays in receipt or failure to receive
such clearances or approvals, the loss of previously received clearances or
approvals, or failure to comply with existing or future regulatory requirements
could have a material adverse effect on QLT's business, financial condition and
results of operations.

    Drugs manufactured or distributed pursuant to FDA approvals are subject to
pervasive and continuing regulation by the FDA and certain state agencies.
Manufacturers are subject to inspection by the FDA and those state agencies, and
must comply with the host of regulatory requirements that apply to drugs
marketed in the U.S., including the FDA's labeling regulations, Good
Manufacturing Practice ("GMP") requirements, adverse event reporting
(requirements that a manufacturer report to the FDA certain types of adverse
events involving its products), and the FDA's general prohibitions against
promoting products for unapproved or "off-label" uses. Non-compliance with
applicable regulatory requirements could result in enforcement action by the
FDA, which could have a material adverse effect on QLT.

    REGULATION OF DRUGS. Different types of FDA regulation apply to various drug
products, depending upon whether they are marketed only upon the order of a
physician or over-the-counter, are biological drugs, or are controlled drugs
such as narcotics. Product development and approval within this regulatory
framework takes a number of years, involves the expenditure of substantial
resources and is uncertain. Many drug products that initially appear promising
ultimately do not reach the market because they are not found to be safe and
effective or cannot meet the FDA's other regulatory requirements. In addition,
there can be no assurance that the current regulatory framework will not change
or that additional regulation will not arise at any stage of QLT's product
development that may affect approval, delay the submission or review of an
application or require additional expenditures by QLT.

    The activities required before a new drug product may be marketed in the
U.S. primarily begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and other characteristics and animal
studies to assess the potential safety and efficacy of the product as
formulated. Many preclinical studies are regulated by the FDA under a series of
regulations called the current Good 



                                       13

<PAGE>

Laboratory Practice ("GLP") regulations. Violations of these regulations can, in
some cases, lead to invalidation of the studies, requiring such studies to be
replicated.

    The entire body of preclinical development work necessary to administer
investigational drugs to human volunteers or patients, along with relevant
manufacturing information about the drug and the proposed clinical protocol, is
summarized in an Initial New Drug ("IND") application to the FDA. FDA
regulations provide that human clinical trials may begin 30 days following
receipt of an IND application, unless the FDA advises otherwise or requests
additional information, clarification or additional time to review the
application. There is no assurance that the submission of an IND will eventually
allow a company to commence clinical trials. Once trials have commenced, the FDA
may stop the trials, or particular types of trials, by placing a "clinical hold"
on such trials because of concerns about, for example, the safety of the product
being tested. Such holds can cause substantial delay and in some cases may
require abandonment of a product.

    Clinical testing involves the administration of a drug to healthy human
volunteers or to patients under the supervision of a qualified principal
investigator, usually a physician, pursuant to an FDA reviewed IND protocol.
Each clinical study is conducted under the auspices of an Institutional Review
Board ("IRB") in respect of each of the clinical sites at which the study will
be conducted. An IRB will consider, among other things, ethical factors, the
safety of human subjects and the possible liability of the clinical site. Human
clinical trials typically are conducted in three sequential phases, but the
phases may overlap. Phase I clinical studies consist of testing the product in a
small number of patients or normal volunteers, primarily for safety, in one or
more dosages, as well as characterization of a drug's pharmacokinetic and/or
pharmacodynamic profile. In Phase II, in addition to safety, the efficacy of the
product is evaluated in a patient population. Phase III clinical studies
typically involve additional testing for safety and clinical efficacy and an
expanded population at geographically dispersed sites. A clinical plan, or
"protocol," accompanied by the approval of an IRB, must be submitted to the FDA
prior to commencement of each Phase of clinical study. All patients involved in
a clinical study must provide informed consent prior to their participation. The
FDA may order the temporary or permanent discontinuance of a clinical study at
any time for a variety of reasons, particularly if safety concerns exist. These
clinical studies must be conducted in conformance with the FDA's bioresearch
monitoring regulations.

    A company seeking FDA approval to market a new drug that is a new chemical
entity must file an New Drug Application (an "NDA") with the FDA pursuant to the
FDC Act or a Market Authorization Application ("MAA") in Europe. In addition to
reports of the preclinical and clinical trials conducted under an effective IND
application, the NDA includes information pertaining to the preparation of the
drug substance, analytical methods, drug product formulation, details on the
manufacture of finished products and proposed product packaging and labeling.
Submission of an NDA does not assure FDA approval for marketing. The application
review process generally takes one to three years to complete, although reviews
of treatments for cancer, AIDS, and other life-threatening diseases may be
accelerated, expedited or subject to fast track handling. The process may take
substantially longer if, among other things, the FDA has questions or concerns
about the safety and/or efficacy of a product. In general, the FDA requires at
least two properly conducted, adequate and well-controlled clinical studies
demonstrating efficacy with sufficient levels of statistical and clinical
significance. However, additional information may be required. For example, the
FDA also may request long-term toxicity studies or other studies relating to
product safety or efficacy. Notwithstanding the submission of such data, the FDA
ultimately may decide that the application does not satisfy its regulatory
criteria for approval and may not approve the NDA. Finally, the FDA may require
additional clinical tests following NDA approval to confirm safety and efficacy
(Phase IV clinical studies).

    In addition, the FDA may in some circumstances impose restrictions on the
use of the drug that may be difficult and expensive to administer. Product
approvals may be withdrawn if compliance with regulatory requirements is not
maintained or if problems occur after the product reaches the market. After a
product is approved for a given indication, subsequent new indications or dosage
levels for the same product are reviewed by the FDA via the filing and upon
approval of a supplement. The supplement is much more focused than the original
application and deals primarily with safety and effectiveness data related to
the new indication or dosage. Finally, the FDA requires reporting of certain
safety and other information that becomes known to a manufacturer of an approved
drug. If an active ingredient of a drug product has been previously approved,
there may be other types of drug applications that can be filed that are less
time-consuming and costly. No assurance exists that any of these types of drug
applications will be available or benefit QLT.



                                       14

<PAGE>

    The product testing and approval process is likely to take a substantial
number of years and involve expenditure of substantial resources. There can be
no assurance that any approval will be granted on a timely basis, or at all. The
FDA also may require postmarketing testing and surveillance to monitor the
record of the product and continued compliance with regulatory requirements.
Upon approval, a prescription drug may only be marketed for the approved
indications in the approved dosage forms and at the approved dosage. Adverse
experiences with the product must be reported to the FDA.

    Among the requirements for product approval is the requirement that the
prospective manufacturer conform to the FDA's current GMP regulations for drugs.
In complying with the GMP regulations, manufacturers must continue to expend
time, money and effort in product, record keeping and quality control to assure
that the product meets applicable specifications and other requirements. In
addition, advertising and promotional materials relating to QLT's drugs are
subject to regulation by the FDA. The FDA periodically inspects manufacturing
facilities in the U.S. and abroad in order to ensure compliance with applicable
GMP requirements and all other regulatory requirements. Failure of QLT or QLT's
contract manufacturers of Visudyne to comply with the FDA's GMP regulations or
other FDA regulatory requirements could have a significant adverse effect on
QLT's business, financial condition and results of operations. See "-- Product
Manufacturing".

    QLT currently has active INDs for the ongoing clinical trials for Visudyne
and for verteporfin for the treatment of various ocular indications and multiple
basal cell carcinoma. In addition, QLT has active INDs for QLT0074 (BPH and
androgenetic alopecia) and tariquidar (non-small cell lung cancer and breast
cancer). It is uncertain if and when QLT will submit NDAs for any of these drugs
for any of the studied indications. There can be no assurance that any of these
studies will be completed or, if completed, will demonstrate that the drugs are
safe and effective for their intended uses, nor can assurance be given that
approval will be granted by the FDA on a timely basis, or at all, for any of
these drugs for the studied indications.

    REGULATION OF COMBINATION PRODUCTS. Medical products containing a
combination of drugs, including biologic drugs, or devices may be regulated as
"combination products" in the U.S. A combination product generally is defined as
a product comprised of components from two or more regulatory categories
(drug/device, device/biologic, drug/biologic, etc.). Each component of a
combination product is subject to the requirements established by the FDA for
that type of component, whether a drug, including a biologic drug, or device.

    In order to facilitate premarket review of combination products, the FDA
designates one of its centers to have primary jurisdiction for the premarket
review and regulation of both components. The FDA makes the determination
whether a product is a combination product or two separate products on a
case-by-case basis.

    OTHER REGULATIONS. QLT is subject to numerous federal, state, provincial and
local laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances. There can be no assurance that
QLT will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
materially adverse effect upon QLT's ability to do business. Unanticipated
changes in existing regulatory requirements, failure of QLT to comply with such
requirements or adoption of new requirements could have a material adverse
effect on QLT.

COMPETITION

    The pharmaceutical and biotechnology industries are characterized by rapidly
evolving technology and intense competition. QLT's competitors include major
pharmaceutical and bio-pharmaceutical companies, many of which have financial,
technical and marketing resources significantly greater than those of QLT and
substantially greater experience in developing products, conducting preclinical
and clinical testing, obtaining regulatory approvals, manufacturing and
marketing. In addition, many bio-pharmaceutical companies have formed
collaborations with large, established pharmaceutical companies to support
research, development and commercialization of products that may be competitive
with QLT's products. Academic institutions, government agencies and other public
and private research organizations also are conducting research activities and
seeking patent protection and may commercialize products on their own or through
joint ventures. The existence of these products, or other products or treatments
of which QLT is not aware, or 



                                       15

<PAGE>

products or treatments that may be developed in the future, may adversely affect
the marketability of products developed by QLT.

    QLT is aware of a number of competitors or potential competitors developing
therapies in markets of interest to QLT, including AMD. In particular, QLT
believes that EyeTech Pharmaceuticals and Pfizer, Genentech, Inc., Alcon
Laboratories, Inc., and Iridex Corporation are developing or may develop
competitive therapies targeted for the AMD employing different technologies,
several of which involve injections directly into the eye.

    QLT is also aware that other companies are engaged in the development of
products which might become competitive to QLT's products, but none are
considered as advanced as those of the companies' mentioned above.

    QLT believes that these competitors are or might be conducting preclinical
studies and clinical testing on their own or with certain third parties in
various countries for a variety of diseases and medical conditions in which we
have ongoing development programs. These and other companies also may be
involved in competitive activities of which we are not aware.

    An important competitive factor is the timing of market introduction of
products by QLT or its competitors. Accordingly, the relative speed with which
QLT and QLT's present and future collaborative partners can develop products,
complete the clinical trials and approval processes and supply commercial
quantities of products to the market is critical. QLT does not believe that
regulatory approval for the products of the competitors named above would be
obtainable before the end of 2004.

    QLT's competition will be determined in part by the potential indications
for which QLT's products are developed and ultimately approved by regulatory
authorities. The development by competitors of new treatment methods for those
indications for which QLT is developing products could render QLT's products
non-competitive or obsolete. QLT expects that competition among products
approved for sale will be based, among other things, on product efficacy,
safety, reliability, availability, price and intellectual property protection.

LIABILITY AND PRODUCT RECALL

    The testing, manufacture, marketing and sale of human pharmaceutical
products entail significant inherent risks of allegations of product defects.
The use of QLT's products in clinical trials and the sale of such products may
expose QLT to liability claims alleged to result from the use of such products.
These claims could be made directly by patients or consumers, healthcare
providers or others selling the products. In addition, QLT is subject to the
inherent risk that a governmental authority may require the recall of one or
more of QLT's products. QLT currently carries clinical trials and product
liability insurance to cover certain claims that could arise during the clinical
studies of QLT's products, or during the commercial use of Visudyne. The limits
of liability under the insurance policy are $20 million per incident and per
year in the aggregate. Such coverage and the amount and scope of any coverage
obtained in the future may be inadequate to protect QLT in the event of a
successful product liability claim, and there can be no assurance that the
amount of such insurance can be increased, renewed or both. A successful product
liability claim could materially adversely affect the business, financial
condition or results of operations of QLT.

    Further, liability claims relating to the use of QLT's products or a product
recall could negatively affect the Company's ability to obtain or maintain
regulatory approval for its products. QLT has agreed to indemnify certain of its
collaborative partners against certain potential liabilities relating to the
manufacture and sale of QLT's products.

ENVIRONMENT

    QLT seeks to comply with all applicable statutory and administrative
requirements concerning environmental protection. It is not anticipated that
expenditures for environmental protection will have a material adverse effect on
QLT's capital expenditures, earnings or competitive position.



                                       16

<PAGE>

    QLT is the owner of the land on which its head office and research
facilities are located in Vancouver, British Columbia, and an adjacent site.

    When the head office site was purchased in 1998, the vendor provided QLT
with a Certificate of Compliance, issued by the Ministry of Environment, Lands
and Parks of the Province of British Columbia, concerning the satisfaction of
environmental standards and regulations as prescribed or required under the
Waste Management Act (British Columbia).

    When the adjacent site was purchased by QLT in 2001, the vendor provided QLT
with a Certificate of Compliance issued by the Ministry of Environment, Lands
and Parks of the Province of British Columbia, concerning the remediation of the
lands to meet environmental standards and regulations as prescribed or required
under the Waste Management Act (British Columbia).

    In addition, QLT has an indemnification from the vendor of both properties
concerning future environmental liabilities associated with the property. See
"-- Properties".

RESEARCH AND DEVELOPMENT

    During the years ended December 31, 2002, 2001, and 2000, QLT's total
research and development expenses were $42.3 million, $42.9 million and $32.8
million respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

HUMAN RESOURCES

    As of February 28, 2003, QLT had 336 employees, of which 179 were engaged in
research, development, clinical and regulatory affairs, manufacturing and
process development, and medical devices. 157 of these employees were engaged in
administration, commercial operations and materials management, corporate
communications, corporate development, finance, information technology, human
resources and marketing and sales planning. All QLT employees are located in
Canada. None of QLT's employees belong to a labor union and QLT considers its
relationship with its employees to be good. QLT believes it offers competitive
compensation, incentive and fringe benefit programs, which include equity
participation plans.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

    Set out below is certain information with respect to the Company's executive
officers as of February 28, 2003:


<TABLE>
<CAPTION>

                  NAME                           AGE                        POSITION
                  ----                           ---                        --------

<S>                                            <C>     <C>                                                   
         Paul J. Hastings.....................   43      President, Chief Executive Officer and Director

         Mohammad Azab........................   47      Senior Vice President and Chief Medical Officer

         Robert L. Butchofsky.................   41      Vice President, Marketing and Sales Planning

         Alain H. Curaudeau...................   46      Senior Vice President, Project Planning and Management

         Michael J. Doty......................   56      Senior Vice President and Chief Financial Officer

         Therese Hayes........................   36      Vice President, Corporate Communications and Investor
                                                         Relations

</TABLE>



                                       17

<PAGE>


<TABLE>
<CAPTION>

                  NAME                           AGE                        POSITION
                  ----                           ---                        --------

<S>                                            <C>     <C>                                                   
         Linda M. Lupini......................   43      Senior Vice President, Human Resources and
                                                         Administration

         Lawrence D. Mandt....................   50      Senior Vice President, Quality and Regulatory Affairs

         William J. Newell....................   45      Senior Vice President and Chief Business Officer

         Ian Patrick,                            60      Vice President, Manufacturing and Pharmaceutical
         Ph.D....................                        Development

</TABLE>


    Paul J. Hastings was appointed President, Chief Executive Officer and a
Director of the Company effective February 17, 2002. From January 2001 to
February 15, 2002, Mr. Hastings was President, CEO and a Director of Axys
Pharmaceuticals, Inc., where he was responsible for all aspects of the
organization including leading the strategic acquisition of Axys by Celera
Corporation. Since starting his career in 1984 with Hoffman La Roche, Mr.
Hastings has held various positions of increasing responsibility with notable
biotech and pharmaceutical companies. From June 1999 to January 2001, Mr.
Hastings was President of Chiron BioPharmaceuticals. From June 1998 to June
1999, Mr. Hastings was President and Chief Executive Officer of LXR
Biotechnology. From 1994 to 1998, amongst his positions of increasing
responsibility at Genzyme, Mr. Hastings was Vice-President, Global Marketing,
Genzyme Corporation; Vice-President, General Manager of Genzyme Therapeutics
Europe; President, Genzyme Therapeutics Europe; and President, Genzyme
Therapeutics Worldwide. From 1988 to 1994, included in Mr. Hastings' increasing
positions of responsibility at Synergen, Mr. Hastings was Vice-President,
Marketing and Sales of Synergen, Inc. and Vice-President, General Manager of
Synergen Europe, Inc. Mr. Hastings holds a Bachelor of Science in Pharmacy from
the University of Rhode Island. Mr. Hastings is a member of the boards of
directors of several organizations including ViaCell Inc., B.C.'s Leading Edge
Endowment Fund, Arriva Pharmaceuticals, the B.C. Biotech Association and
Vancouver's St. Paul's Hospital.

    Mohammad Azab, M.D., joined the Company as Vice President, Clinical Research
and Medical Affairs in 1997 and was promoted to Senior Vice President, Clinical
Research and Medical Affairs in March 2000. Dr. Azab became Chief Medical
Officer in February of 2003. Prior to joining QLT, Dr. Azab spent five years
with Zeneca Pharmaceuticals in Manchester, England, where he was responsible for
international clinical development of oncology and gynecology drugs and three
years with Sanofi as worldwide medical manager of oncology. Dr. Azab has been
actively involved in the development of several currently approved drugs mainly
in the fields of oncology and ophthalmology. Before joining industry, Dr. Azab
practiced as an oncologist and lectured in oncology at the Institute Gustave
Roussy, the University of Paris-Sud in France and at Cairo University in Egypt.
Dr. Azab has authored over one hundred papers and abstracts and is a member of
the American Society of Clinical Oncology and the European Society of Medical
Oncology.

    Robert L. Butchofsky joined QLT in 1998 as Associate Director, Ocular
Marketing and was appointed Vice President, Marketing and Sales Planning in
September 2001. Mr. Butchofsky is now responsible for the ongoing marketing of
Visudyne as well as the creation of an oncology sales force within QLT 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 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.

     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. 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. Most recently he was designated head of
Project Management for Aventis, a new company formed in 1999 by the merger
between RPR and Hoechst AG. Mr. Curaudeau holds a Bachelors and Masters degree
in Pharmacy from the University of Chatenay-Malabry, Paris, France. He is also a
graduate of the Toxicology and 



                                       18

<PAGE>

Pharmacokinetics Programs from the same university and received academic
training in toxicological pathology from the National Veterinary School in
Toulouse, France.

    Michael J. Doty joined QLT as Senior Vice President and Chief Financial
Officer of the Company in November 2001. Mr. Doty is a Certified Public
Accountant with more than 25 years of experience in a wide range of financial,
administrative and planning positions at companies such as 3M, Honeywell, Inc.
and Reckitt & Colman, PLC (now Reckitt Benckiser PLC). Prior to joining QLT,
from May 1999 to October 2001, he was Senior Vice President and Chief Financial
Officer of Inamed Corporation, a global supplier of medical devices. From 1997
to 1999, Mr. Doty was the Vice President and Chief Financial Officer of O-Cedar
Brands, Inc., a private consumer product company based in Cincinnati, and from
1994 to 1997, he was the Vice President and Chief Financial Officer of White
Systems, Inc., a manufacturer and software developer. Mr. Doty holds Bachelor of
Chemistry, Institute of Technology and Bachelor of Science, Business
Administration degrees from the University of Minnesota and a Master of Business
Administration degree from the University of St. Thomas.

    Therese Hayes became Vice President, Corporate Communications and Investor
Relations in February, 2003. Ms. Hayes joined QLT in 2001 as Senior Director,
Corporate Communications and Investor Relations. Ms. Hayes is responsible for
all aspects of internal and external communications and investor relations for
the Company. Ms. Hayes brought 15 years of management experience in healthcare
and biotechnology, including scientific research, financial and scientific
communications and business development to QLT. Prior to joining QLT, Ms. Hayes
was Vice President Corporate Communications at SangStat Medical Corporation, a
biotechnology company based in California. Ms. Hayes holds a Bachelor of Science
degree from the University of Waterloo, a Masters of Microbiology and Immunology
and a Masters of Health Administration, both from the University of Ottawa.

     Linda M. Lupini was promoted to Senior Vice President, Human Resources and
Administration in February of 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 is currently serving as a
member representing employers on the British Columbia Employment Standards
Tribunal.

    Lawrence D. Mandt joined QLT in 1999 as Vice President, Regulatory Affairs
and was promoted to Senior Vice President, Quality and Regulatory Affairs in
September 2000. Mr. Mandt brought 25 years of experience and a strong base of
scientific research and regulatory and medical affairs management when he joined
the Company. During his 15 years at the U.S.-based headquarters of Bausch &
Lomb, he rose through progressively senior positions in clinical and biological
research management before joining CIBA Vision where he led the regulatory and
medical affairs team and was their chief liaison with the FDA. In addition to
previous posts held at Merck Sharp & Dohme and Amstar, Mr. Mandt, who holds a
Bachelor of Science degree in Biology from Mankato State University, has also
been an active member in a number of industry organizations.

    William J. Newell joined QLT as Senior Vice President and Chief Business
Officer in June of 2002. Mr. Newell is a lawyer with extensive legal and
business development experience. Prior to joining QLT, Mr. Newell was Senior
Vice President, Corporate and Business Development of Celera Genomics
(previously Axys Pharmaceuticals). Mr. Newell joined Axys in 1998 and held
various positions of increasing responsibility including Vice President, General
Counsel and Senior Vice President, Corporate and Business Development and
General Counsel. Prior to joining Axys Mr. Newell was a partner in the law firm
of McCutchen, Doyle, Brown & Enersen LLP, where he specialized in strategic
business transactions, including mergers and acquisitions and licensing and
financing transactions. Mr. Newell is a member of the board of BIOTECanada.

    Ian Patrick Ph.D. became Vice-President, Manufacturing and Pharmaceutical
Development in February of 2003. Dr. Patrick joined QLT in 2001 after several
years as a consultant to the British biotechnology industry where he specialized
in regulatory affairs including redesign and validation of facilities, processes
and controls. He has many years of experience in manufacturing and process
development as well as project management and facility development, and he began
his career as a research scientist. Dr. Patrick has his 



                                       19

<PAGE>

Bachelor of Science degree (Honours) and his Ph.D. from Leeds University in the
United Kingdom. He is a long standing Fellow of the Royal Society of Chemistry
in the U.K.

    To complement its own expertise in various fields, QLT utilizes scientific
consultants and advisors, all of whom have formal consulting agreements with the
Company.



                                  RISK FACTORS

    In addition to the other information included in this Annual Report, you
should consider carefully the following factors, which describe many, but not
necessarily all, of the risks, uncertainties and other factors that may
materially and adversely affect our business, financial condition and operating
results. We are identifying these as important factors that could cause actual
events or our actual results to differ materially from those contained in any
written or oral forward-looking statements within the meaning of the Private
Securities Reform Act of 1995 made by us or on our behalf in this Annual Report
or elsewhere. We are relying upon the safe harbor for forward-looking statements
and any such statements are qualified by reference to the cautionary statements
set out elsewhere in this Annual Report.

FUTURE SALES FROM VISUDYNE(R) MAY BE LESS THAN EXPECTED.

     Our prospects are highly dependent upon increasing the sales of our only
commercial product, Visudyne. Our revenues to date have consisted largely of
revenue from product sales of Visudyne by Novartis Ophthalmics. If sales of
Visudyne fail to increase, it would have a material adverse effect on our
business, financial condition and results of operations.

A number of factors may affect the rate and breadth of market acceptance of
Visudyne, including:

-   Perception by physicians and other members of the health care community on
    the safety and efficacy of Visudyne

-   Patient and physician demand for Visudyne

-   Novartis Ophthalmics' effectiveness in marketing and selling Visudyne

-   Reimbursement policies of various government and third-party payors

-   Availability of sufficient commercial quantities of Visudyne

-   The placement and maintenance of a sufficient number of laser systems or
    suitable alternate light sources in medical facilities

-   The price of Visudyne relative to other drugs or competing treatments

-   The need for retreatment of Visudyne throughout the treatment process may
    not approximate retreatment rates during clinical development

-   The scope and timing of additional marketing approvals and favorable
    reimbursement programs for expanded uses of Visudyne

-   Increased competition for Visudyne from new or existing products

-   Adverse side effects or unfavorable publicity concerning Visudyne or other
    drugs in its class



                                       20

<PAGE>

OUR FUTURE OPERATING RESULTS ARE UNCERTAIN AND LIKELY TO FLUCTUATE.

     Until the fourth quarter of 2000, QLT had a history of operating losses.
Although QLT was profitable for the years 2000, 2001 and 2002, future operating
performance is not certain and the Company may not be able to maintain operating
profitability. Our accumulated deficit at December 31, 2002 was approximately
$52.9 million.

     Our operating results may fluctuate from period to period for a number of
reasons. In budgetting our operating expenses, some of which are fixed in the
short term, we assume that revenues will continue to grow. Even a relatively
small revenue shortfall or a small increase in operating expenses may cause a
period's results to be below our expectations. A revenue shortfall or increase
in operating expenses could arise from any number of factors, such as:

-   Lower than expected revenues from sales of Visudyne by Novartis Ophthalmics

-   Changes in our product pricing strategies

-   High levels of marketing expenses for Visudyne, in particular outside of the
    United States

-   Fluctuations in currency exchange rates

-   Unfavorable outcome of pending patent or securities litigation against QLT.
    See "Legal Proceedings"

-   Higher than expected operating expenses as a result of increased costs
    associated with the development or commercialization of Visudyne,
    tariquidar, and our other product candidates

-   Increased operating expenses as a result of product, technology acquisitions
    or other acquisitions or business combinations

OUR PRODUCT DEVELOPMENT EFFORTS FOR VISUDYNE(R), TARIQUIDAR AND OUR OTHER
PRODUCTS IN DEVELOPMENT MAY NOT YIELD MARKETABLE PRODUCTS DUE TO UNFAVORABLE
RESULTS OF CLINICAL STUDIES OR TRIALS, FAILURE TO ACHIEVE REGULATORY APPROVALS
OR MARKET ACCEPTANCE, PROPRIETARY RIGHTS OF OTHERS OR MANUFACTURING ISSUES.

     Our success depends on our ability to successfully develop and obtain
regulatory approval to market new pharmaceutical products. Development of a
product requires substantial technical, financial and human resources even if
the product is not successfully completed.

     Our potential products may appear to be promising at various stages of
development yet fail to reach the market for a number of reasons, including:

-   Lack of sufficient treatment benefit or unacceptable safety issues during
    preclinical studies or clinical trials

-   Lack of commercial market opportunity

-   Results from preclinical and early clinical studies may not be predictive of
    results obtained in large scale clinical trials

-   The FDA may suspend our clinical trials at any time if, among other reasons,
    it concludes that patients participating in such trials are being exposed to
    unacceptable health risks

-   Failure to receive necessary regulatory approvals after completion of
    clinical trials

-   Existence of conflicting proprietary rights of third parties

-   Inability to develop manufacturing methods that are efficient,
    cost-effective and capable of meeting stringent regulatory standards


                                       21

<PAGE>

     Additional regulatory approvals will also be needed to expand the uses for
which Visudyne may be marketed in the United states and the European countries
and other markets where it is already approved or applications are pending, and
those approvals may be delayed, may not be obtained or may be more limited than
anticipated.

     Pursuant to the recommendation of the Data Safety and Monitoring Committee
of the two Phase III studies of tariquidar in non small cell lung cancer,
enrollment in these trials has been halted pending an interim satefy and
efficacy analyses of 150 patients already enrolled in the two trials. There can
be no assurance that the Data Safety and Monitoring Committee will recommend
that enrollment in these trials recommence following these analyses. These
trials remain blinded, and QLT cannot predict what might be the outcome of the
interim analyses.

FAILURE OF NOVARTIS OPHTHALMICS TO EFFECTIVELY MARKET VISUDYNE(R) WOULD REDUCE
POTENTIAL REVENUES.

     We are reliant on the efforts of Novartis Ophthalmics in promoting and
selling Visudyne. If Novartis Ophthalmics does not dedicate sufficient resources
to the promotion of Visudyne, or if Novartis Ophthalmics fails in its marketing
efforts, the revenues we receive from the sale of Visudyne would decrease and
our business and operating results would be adversely affected.

VISUDYNE(R) SALES ARE WORLDWIDE, AND CURRENCY FLUCTUATIONS MAY IMPAIR OUR
REPORTED FINANCIAL RESULTS.

    In most significant markets, Visudyne is sold in the local currency.
Although we implement currency hedging techniques to mitigate the impact of
currency fluctuations on our financial results, these techniques do not
eliminate the effects of foreign currency fluctuations with respect to
anticipated revenues or cash flows, and, as they are short term in nature, do
not protect us from prolonged periods of currency fluctuations.

WE ARE DEPENDENT UPON THIRD-PARTIES TO DEVELOP AND COMMERCIALIZE SOME OF OUR
PRODUCT CANDIDATES.

    Our strategy for the research, development, manufacture and marketing of
Visudyne and our other products includes entering into various arrangements with
third parties and therefore is dependent upon the subsequent success of these
third parties in performing their responsibilities under such arrangements.
Although we believe that parties to such arrangements have an economic incentive
to succeed in performing their contractual responsibilities, the amount and
timing of resources to be devoted to these activities generally are not under
our control. We cannot predict whether such parties, including Novartis
Ophthalmics, will perform their obligations as expected or whether significant
revenue will be derived or sustained from such arrangements. To the extent such
parties do not perform adequately under our various agreements with them, the
development and commercialization of our products may be delayed, may become
more costly to us or may be terminated.

    In some cases, these agreements may be terminated by the other party with
limited notice, and, in certain circumstances, the other party may acquire
certain rights to the products under development upon termination.

IN THE FIELD OF PDT, WE ARE DEPENDENT UPON THE SUCCESS AND CONTINUED SUPPLY OF
THIRD-PARTY MEDICAL DEVICE COMPANIES WITH COMPLEMENTARY LIGHT SOURCE AND LIGHT
DELIVERY DEVICES.

    Because PDT requires a light source, and in some instances a light delivery
system, to be used in conjunction with our photosensitizers, we are dependent
upon the success of medical device companies in placing and maintaining light
sources with the appropriate medical facilities and in distributing the light
delivery systems. If the medical device companies with whom we or our
collaborative partners have strategic relationships are unable to achieve the
appropriate placements of light sources and ensure an uninterrupted supply of
light delivery systems, as applicable, if they terminate the collaborative
arrangements to pursue more profitable market opportunities, or if they, as a
result of industry consolidation or for other reasons no longer supply
complementary light sources or light delivery systems, the sale of Visudyne by
our distribution partners and our share of revenues from the sale of Visudyne
may be adversely affected. We may not be able to secure additional arrangements
with other leading medical device companies to complement the activities of our
current providers.



                                       22

<PAGE>

WE MAY BE UNABLE TO HAVE MANUFACTURED OR CONTINUE TO HAVE MANUFACTURED
EFFICIENTLY COMMERCIAL QUANTITIES OF VISUDYNE(R), OR OUR OTHER PRODUCTS, SUCH AS
TARIQUIDAR, IN COMPLIANCE WITH FDA AND OTHER REGULATORY REQUIREMENTS.

    Our ability to conduct clinical trials and commercialize Visudyne and our
other products, either directly or in conjunction with others, depends, in large
part, on our ability to have such products manufactured at a competitive cost
and in accordance with FDA and other regulatory requirements. Our contract
manufacturers' manufacturing and quality procedures may not achieve or maintain
compliance with applicable FDA and other regulatory standards, and, even if they
do, we may be unable to produce or continue to produce commercial quantities of
Visudyne and our other products at an acceptable cost or margin.

    If current manufacturing processes are modified, or the source or location
of our product supply is changed, regulatory authorities will require us to
demonstrate that the material produced from the modified or new process or
facility is equivalent to the material used in the clinical trials or products
previously approved. Any such modifications to the manufacturing process or
supply may not achieve or maintain compliance with the applicable regulatory
requirements. In many cases, prior approval by regulatory authorities may be
required before any changes can be instituted.

    We depend on several third parties in the U.S., Canada, Europe and Japan to
manufacture Visudyne and, if such third parties fail to meet their respective
contract commitments, we may not be able to supply or continue to supply
commercial quantities of the product or conduct certain future clinical testing.

    We have limited experience in the manufacture of tariquidar, and may be
unsuccessful in securing a long-term supply agreement for the commercial
manufacture of tariquidar on terms which are favorable to the Company.

THE SUCCESS OF VISUDYNE(R) AND OUR OTHER PRODUCTS MAY BE LIMITED BY GOVERNMENTAL
AND OTHER THIRD-PARTY PAYORS.

     The continuing efforts of governmental and third-party payors to contain or
reduce the costs of health care may negatively affect the sale of Visudyne and
our other products. Our ability to commercialize Visudyne and our other products
successfully will depend in part on the timeliness of and the extent to which
adequate reimbursement for the cost of such products and related treatments is
obtained from government health administration authorities, private health
insurers and other organizations in the U.S. and foreign markets. Product sales,
attempts to gain market share or introductory pricing programs of our
competitors could require us to lower our prices which could adversely affect
our results of operations. We may be unable to set or maintain price levels
sufficient to realize an appropriate return on our investment in product
development. Significant uncertainty exists as to the reimbursement status of
newly approved therapeutic products or newly approved product indications.

    Third-party payors are challenging the price and cost-effectiveness of
medical products and services, and the adoption of new legislation and
regulations affecting the pricing of pharmaceuticals could further limit
reimbursement for medical products and services. To the extent such governmental
or private third-party payors focus their efforts on Visudyne or our current or
future product candidates, sales of such products could be negatively affected.

    There can be no assurance that any of our applications for reimbursement for
all or any component of Visudyne therapy will result in approvals or that our
current reimbursement approvals will not be reduced or reversed in whole or in
part. For example, during 2002 the CMS aanounced that they would not uphold
their original intention to expand the national coverage policy for Visudyne
therapy to include reimbursement for patients with occult only subfoveal CNV
secondary to AMD. That decision constituted a reversal of the CMS' original
position.




                                       23

<PAGE>

PATIENT ENROLLMENT MAY NOT BE ADEQUATE FOR OUR CURRENT TRIALS OR FUTURE CLINICAL
TRIALS.

    Our business could suffer if we fail to develop and maintain sufficient
levels of patient enrollment in our current or future clinical trials. Our
ability to complete clinical trials is dependent upon, among other factors, the
rate of patient enrollment, which is a function of many factors, including:

-   The nature of our clinical trial protocols or products

-   The existence of competing protocols

-   The size and longevity of the target patient population

-   The proximity of patients to clinical sites

-   Eligibility criteria for the trials

-   Patient drop out rates for the trials

    Delays in planned patient enrollment may result in increased costs, delays
or termination of clinical trials, which could materially harm our business.

VISUDYNE(R), TARIQUIDAR AND QLT'S OTHER PRODUCTS MAY EXHIBIT ADVERSE SIDE
EFFECTS THAT PREVENT THEIR WIDESPREAD ADOPTION OR THAT NECESSITATE WITHDRAWAL
FROM THE MARKET.

    Visudyne (or verteporfin), tariquidar and QLT's other products may exhibit
undesirable and unintended side effects that may prevent or limit their
commercial adoption and use.

    Even after approval by the FDA and other regulatory authorities, Visudyne
and our other products may later exhibit adverse side effects that prevent
widespread use or necessitate withdrawal from the market. New unexpected side
effects not previously observed during clinical trials could emerge in the
future. The manifestation of such side effects could cause our business to
suffer. In some cases, regulatory authorities may require labelling changes that
could add warnings or restrict usage based on unexpected side effects seen after
marketing a drug.

WE MAY FACE COMPETITION AND NOT BE SUCCESSFUL IN ADDRESSING IT.

    We may be unable to contend successfully with current or future competitors.
The pharmaceutical and biotechnology industries are characterized by rapidly
evolving technology and intense competition. Our competitors include major
pharmaceutical and bio-pharmaceutical companies, many of which have or have
access to financial, technical and marketing resources significantly greater
than ours and substantially greater experience in developing and manufacturing
products, conducting preclinical and clinical testing, and obtaining regulatory
approvals

    We are aware of certain products manufactured or under development by
competitors that are used for the prevention and treatment of certain diseases
which we have targeted for product development. The existence of these products,
or other products or treatments of which we are not aware, or products or
treatments that may be developed in the future, may adversely affect the
marketability of our products.

    We are aware of a number of competitors developing treatments for AMD,
including EyeTech Pharmaceuticals, Genentech, Inc., Alcon Laboratories, Inc.,
and Iridex Corporation. We also believe that Visudyne could be competing against
surgical or other treatments for AMD, including macular translocation,
submacular surgery and laser photocoagulation, among others.

    We believe that each of these competitors is or might be conducting
preclinical studies and clinical testing on their own or with certain third
parties in various countries for a variety of diseases and medical conditions in
which we have ongoing development programs. These and other companies also may
be involved in competitive activities of which we are not aware.



                                       24

<PAGE>

WE DEPEND ON KEY PERSONNEL, AND IF WE DO NOT ATTRACT AND RETAIN KEY PERSONNEL,
OUR BUSINESS COULD BE ADVERSELY AFFECTED.

    Our success depends upon the continued contributions of our executive
officers and scientific and technical personnel. Many of our key
responsibilities have been assigned to a relatively small number of individuals.
The competition for qualified personnel is intense, and the failure to secure
the services of key personnel or loss of services of key personnel could
adversely affect our business.

OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN NEGOTIATING OR INTEGRATING
FUTURE ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES.

    We may not be successful in initiating or completing negotiations to expand
our operations and market presence by future product, technology or other
acquisitions and business combinations, joint ventures or other strategic
alliances with other companies. If we are successful in these negotiations,
these transactions create risks, such as:

-   Difficulty assimilating the operations, technology and personnel of the
    combined companies

-   Disruption of our ongoing business, including loss of management focus on
    existing businesses and other market developments

-   Problems retaining key technical and managerial personnel

-   Expenses associated with the treatment of in-process research and
    development and amortization of other purchased intangible assets

-   Impairment of relationships with existing employees, customers and business
    partners

-   Additional losses from any equity investments we might make

    We may not succeed in addressing these risks, and we may not be able to make
acquisitions and business combinations, joint ventures or strategic alliances on
terms that are acceptable to us. If we are not successful, our earnings may be
adversely affected. In addition, any businesses we may acquire may incur
operating losses.

WE ARE A DEFENDANT IN A PENDING CLASS ACTION LAWSUIT THAT MAY REQUIRE US TO PAY
SUBSTANTIAL DAMAGES OR OTHERWISE SERIOUSLY HARM OUR BUSINESS.

     Class action litigation is often expensive and time-consuming and the
outcome of such litigation is often uncertain. Regardless of its outcome, the
class action lawsuit may cause us to incur significant expenses and divert the
attention of our management and key personnel from our business operations. In
the worst case, the class action lawsuit may require us to pay substantial
damages and may otherwise seriously harm our business. See "Legal Proceedings".

WE MAY NOT BE ABLE TO OBTAIN AND ENFORCE EFFECTIVE PATENTS TO PROTECT OUR
PROPRIETARY RIGHTS FROM USE BY COMPETITORS, AND PATENTS OF OTHER COMPANIES COULD
REQUIRE US TO STOP USING OR PAY TO USE REQUIRED TECHNOLOGY.

    We may not be able to obtain and enforce patents, to maintain trade secret
protection for our technology and to operate without infringing on the
proprietary rights of third parties. The extent to which we are unable to do so
could materially harm our business.

    We have applied for and will continue to apply for patents for certain
aspects of Visudyne and our other products and technology. Such applications may
not result in the issuance of any patents, and any patents now held or that may
be issued may not provide us with a preferred position with respect to any
product or technology. It is possible that patents issued or licensed to us may
be challenged successfully. In that event, to the extent a preferred position is
conferred by such patents, any preferred position held by us would be lost. 



                                       25

<PAGE>

If we are unable to secure or to continue to maintain a preferred position,
Visudyne and our other products could become subject to competition from the
sale of generic products.

    Patents issued or licensed to us may be infringed by the products or
processes of other parties. The cost of enforcing our patent rights against
infringers, if such enforcement is required, could be significant, and the time
demands could interfere with our normal operations.

    It is also possible that a court may find us to be infringing validly issued
patents of third parties. In that event, in addition to the cost of defending
the underlying suit for infringement, we may have to pay license fees and/or
damages, and may be enjoined from conducting certain activities. Obtaining
licenses under third-party patents can be costly, and such licenses may not be
available at all. Under such circumstances, we may need to materially alter our
products or processes.

    Although we believe that the claims of MEEI in the lawsuits described under
"Legal Proceedings" are without merit, these lawsuits may not ultimately be
resolved in our favor. If either or both lawsuits are not resolved in our favor,
we may be obliged to pay an additional royalty or damages for access to the
inventions covered by the claims in the issued U.S. patents. Unpatented trade
secrets, improvements, confidential know-how and continuing technological
innovation are important to our scientific and commercial success. Although we
attempt to and will continue to attempt to protect our proprietary information
through reliance on trade secret laws and the use of confidentiality agreements
with our corporate partners, collaborators, employees and consultants and other
appropriate means, these measures may not effectively prevent disclosure of our
proprietary information, and, in any event, others may develop independently, or
obtain access to, the same or similar information.

WE MAY FACE FUTURE PRODUCT LIABILITY CLAIMS THAT MAY RESULT FROM THE SALE OF
VISUDYNE(R) AND OUR OTHER PRODUCTS.

    The testing, manufacture, marketing and sale of human pharmaceutical
products entail significant inherent risks of allegations of product liability.
Our use of such products in clinical trials and our sale of Visudyne and our
other product candidates may expose us to liability claims allegedly resulting
from the use of these products. These claims might be made directly by
consumers, healthcare providers or others selling our products. We carry
clinical trials and product liability insurance to cover certain claims that
could arise during the clinical trials for our product candidates, or during the
commercial use of Visudyne. The limits of liability under the insurance policy
are $20 million per incident and per year in the aggregate. Such coverage, and
any coverage obtained in the future, may be inadequate to protect us in the
event of a successful product liability claim, and we may not be able to
increase the amount of such insurance or even renew it. A successful product
liability claim could materially harm our business.

WE MAY BE UNABLE TO COMPLY WITH ONGOING REGULATORY REQUIREMENTS.

    Visudyne and our products under development are subject to extensive and
rigorous regulation for safety, efficacy and quality by the U.S. federal
government, principally the FDA, and by state and local governments. To the
extent Visudyne and our products under development are marketed abroad, they are
also subject to export requirements and to regulation by foreign governments.
The regulatory clearance process is lengthy, expensive and uncertain. We may not
be able to obtain, or continue to obtain, necessary regulatory clearances or
approvals on a timely basis, or at all, for Visudyne or any of our products
under development, and delays in receipt or failure to receive such clearances
or approvals, the loss of previously received clearances or approvals, or
failure to comply with existing or future regulatory requirements could
materially harm our business.

    Drugs manufactured or distributed pursuant to the FDA's approval are subject
to pervasive and continuing regulation by the FDA, certain state agencies and
various foreign governmental regulatory agencies such as the EMEA. Manufacturers
are subject to inspection by the FDA and those state agencies, and must comply
with the host of regulatory requirements that usually apply to drugs marketed in
the U.S., including but not limited to the FDA's labelling regulations, Good
Manufacturing Practice requirements, adverse event reporting, and the FDA's
general prohibitions against promoting products for unapproved or "off-label"
uses. Our failure to comply with applicable requirements could result in
sanctions being imposed on us. These sanctions could include warning letters,
fines, product recalls or seizures, injunctions, refusals to permit 



                                       26

<PAGE>

products to be imported into or exported out of the United States, refusals of
the FDA to grant approval of drugs or to allow us to enter into governmental
supply contracts, withdrawals of previously approved marketing applications and
criminal prosecutions.

    We, our contract manufacturers and manufacturers of light sources and
delivery systems used with Visudyne and our other PDT products under development
are subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control and disposal of hazardous or potentially hazardous
substances. In addition, advertising and promotional materials relating to
medical devices and drugs are, in certain instances, subject to regulation by
the Federal Trade Commission or the FDA. We, our contract manufacturers and
manufacturers of light sources and delivery systems used with Visudyne and our
PDT products under development may be required to incur significant costs to
comply with such laws and regulations in the future, and such laws or
regulations may materially harm our business. Unanticipated changes in existing
regulatory requirements, failure of us, our contract manufacturers or
manufacturers of light sources and delivery systems used with Visudyne and our
PDT products under development to comply with such requirements or the adoption
of new requirements could materially harm our business.

WE MAY NEED ADDITIONAL CAPITAL, AND OUR PROSPECTS FOR OBTAINING IT ARE
UNCERTAIN.

    We may be unable to obtain necessary additional capital in the future. Our
business may not generate the cash necessary to fund our operations and we
expect that the funding requirements for our operating activities will continue
to increase substantially in the future, primarily due to the expanded clinical
testing of Visudyne, tariquidar and our other products. The amount required to
fund additional operating expenses will also depend on other factors, including
the status of competitive products, the success of our research and development
programs, the extent and success of any collaborative research arrangements and
as a result of product, technology or other acquisitions or business
combinations. We could seek additional funds in the future from a combination of
sources, including product licensing, joint development and other financing
arrangements. In addition, we may issue debt or equity securities if we
determine that additional cash resources could be obtained under favorable
conditions, or if future development funding requirements cannot be satisfied
with available cash resources. Additional capital may not be available on terms
favorable to us, or at all. If adequate capital is unavailable, we may have to
reduce substantially or eliminate expenditures for research, development,
clinical testing, manufacturing and marketing for Visudyne, tariquidar and our
other products. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital Resources".

VARIOUS PROVISIONS OF OUR CHARTER AND OUR SHAREHOLDER RIGHTS PLAN MAY HAVE THE
EFFECT OF IMPEDING A CHANGE OF CONTROL, MAKING REMOVAL OF THE PRESENT MANAGEMENT
MORE DIFFICULT OR RESULTING IN RESTRICTIONS UPON THE PAYMENT OF DIVIDENDS AND
OTHER DISTRIBUTIONS TO THE SHAREHOLDERS.

    With shareholder approval, the Company has adopted a shareholder rights plan
which will be in effect for six years commencing March 17, 2002, subject to
further confirmation by shareholders after three years. The general effect of
the plan is to require anyone who seeks to acquire 20% or more of our
outstanding common shares to make a bid complying with specific provisions
included in the plan. In certain circumstances, holders of common shares may
acquire additional shares of QLT (or those of the acquiror) at a 50% discount
from the then-prevailing market price. The provisions of the plan could prevent
or delay the acquisition of our company by means of a tender offer, a proxy
contest or otherwise, making it more difficult for shareholders to receive any
premium over the current market price that might be offered.

    Our authorized preference share capital is available for issuance from time
to time at the discretion of our board of directors, without shareholder
approval. Our charter grants the board of directors the authority, subject to
the corporate law of British Columbia, to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of preference shares, including any dividend rate, voting
rights, conversion privileges or redemption or liquidation rights. The rights of
any future series of preference shares could have an adverse effect on the
holders of our common stock by delaying or preventing a change of control,
making removal of the present management more difficult or resulting in
restrictions upon the payment of dividends and other distributions to the
holders of common stock.



                                       27

<PAGE>

THE MARKET PRICE OF OUR COMMON STOCK IS EXTREMELY VOLATILE.

    The stock prices of pharmaceutical and bio-pharmaceutical companies,
including QLT, are extremely volatile, and it is likely that the market price of
our common stock will continue to be highly volatile. In addition to being
affected by the stock market generally, our stock price could be subject to wide
fluctuations in response to a number of factors, including: 

-   Announcements by us or our competitors of significant acquisitions,
    strategic relationships, joint ventures or capital commitments

-   Announcements by us or our competitors of technological innovations or new
    commercial products

-   Results of clinical trials for Visudyne, tariquidar and our other products
    under development

-   Developments relating to patents, proprietary rights and potential
    infringement

-   Expense and time associated with obtaining government approvals for
    marketing of Visudyne, tariquidar and our other products under development

-   Reimbursement policies of various government and third party payors

-   Public concern over the safety of Visudyne, tariquidar and our other
    products under development or those of our competitors

-   Changes in estimates of our revenue and operating results

-   Variances in our revenue or operating results from forecasts or projections

-   Recommendations of securities analysts regarding investment in our stock


These broad market and industry factors may materially and adversely affect our
stock price, regardless of our operating performance.


I
TEM 2.  PROPERTIES

    QLT owns and occupies 160,000 square feet of laboratory, administrative and
dedicated amenity space on the single site where its head office and research
facilities are located. QLT also owns an additional 2.63 acres of land
immediately adjacent to its head office and research facilities. There is
currently no proposal to construct facilities on the adjacent site.

    The Company believes that its existing facilities are adequate to meet its
needs for the foreseeable future.


ITEM 3.  LEGAL PROCEEDINGS

    Certain of the Company's legal proceedings are discussed below and in Note
17 to the consolidated financial statements, "Contingencies". While the Company
believes these proceedings are without merit and intends to vigorously defend
against these claims, it is impossible to predict accurately or determine the
eventual outcome of these proceedings.

    MEEI LITIGATION

    On April 24, 2000, Massachusetts Eye and Ear Infirmary ("MEEI") filed a
civil suit against the Company in the United States District Court for the
District of Massachusetts seeking to establish exclusive rights for MEEI as the
owner of certain inventions relating to the use of verteporfin as the
photoactive agent in the treatment of certain eye diseases including AMD. During
2002, the Court granted summary judgment in favor of QLT, dismissing all counts
of MEEI's complaint against the Company in this lawsuit.



                                       28

<PAGE>

    The lawsuit (Civil Action No. 00-10783-JLT) relates, in part, to an ongoing
dispute involving U.S. Patent No. 5,798,349 (the "'349 Patent") which was issued
on August 25, 1998 to the Company, MEEI and Massachusetts General Hospital
("MGH") as co-owners. The complaint alleges breach of contract, misappropriation
of trade secrets, conversion, misrepresentation, unjust enrichment, unfair trade
practices and related claims and asks that the Court: (i) declare MEEI the owner
of certain inventions claimed in the '349 Patent; (ii) enjoin the Company from
infringement of those claims or any action that would diminish the validity or
value of such claims; (iii) declare that the Company breached an agreement with
MEEI to share equitably in any proceeds derived as a result of collaboration
leading to the '349 Patent; (iv) impose a constructive trust upon the Company
for any benefit that the Company has or will derive as a result of the '349
Patent; and (v) award MEEI monetary relief for misappropriation of trade secrets
in an amount equal to the greater of MEEI's damages or the Company's profits
from any such misappropriation, and double or treble damages under Massachusetts
law.

    The Company's counterclaim, filed in 2000, against MEEI and two employees of
MEEI, seeks: (i) to correct inventorship on the '349 Patent by adding an
additional MGH researcher as a joint inventor; (ii) a declaration that the
Company and MGH are joint owners of the '349 Patent; (iii) a determination that
MEEI is liable to the Company for conversion and unfair trade practices under
Massachusetts law; (iv) an injunction to prohibit MEEI from prosecuting any
patent application claiming subject matter already claimed in the '349 Patent;
and (v) an award of damages and attorneys' fees. QLT subsequently dismissed
voluntarily its counterclaim for conversion.

    In 2002, QLT moved for summary judgement against MEEI on all counts of
MEEI's complaint in Civil Action No. 00-10783-JLT. The Court granted QLT's
motions, thus dismissing all of MEEI's claims in this lawsuit. QLT's
counterclaims against MEEI remain outstanding.

    On May 1, 2001, the United States Patent Office issued United States Patent
No. 6,225,303 (the "'303 Patent") to MEEI. The `303 Patent is derived from the
same patent family as the '349 Patent and claims a method of treating unwanted
choroidal neovasculature in a shortened treatment time using verteporfin. The
patent application which led to the issuance of the `303 patent was filed and
prosecuted by attorneys for MEEI and, in contrast to the '349 patent, named only
MEEI researchers as inventors.

    The same day the `303 patent was issued, MEEI commenced a second civil suit
against the Company and Novartis Ophthalmics, Inc. alleging infringement of the
`303 Patent (Civil Action No. 01-10747-EFH). The suit seeks damages and
injunctive relief for patent infringement and unjust enrichment. The Company has
answered the complaint, denying its material allegations and raising a number of
affirmative defenses, and has asserted counterclaims against MEEI and the two
MEEI researches who are named as inventors on the `303 patent. The Company's
counterclaim seeks to correct inventorship of the `303 patent by adding QLT and
MGH researchers as joint inventors and asks the court to declare that QLT and
MGH are co-owners of the `303 patent. The counterclaim also requests a
declaration that QLT does not infringe, induce infringement, or contribute to
infringement of the `303 patent, asserting, among other reasons, that QLT and
MGH are rightful co-owners of the patent and QLT has a license from MGH of MGH's
co-ownership rights under the patent. In addition, the counterclaim seeks a
declaratory judgement that the `303 patent is invalid and unenforceable.
Finally, the Company's counterclaim seeks an award of monetary damages for
breach of material transfer agreements governing MEEI's use of verteporfin,
based upon MEEI's failure to notify QLT of MEEI's intent to file the patent
application that led to the issuance of the `303 patent to MEEI.

    In November 2001, MGH sought and was granted leave to intervene in the
action to protect its rights in the `303 patent. MGH's complaint in
intervention, like QLT's counterclaim, asks the court to correct inventorship of
the `303 patent by adding QLT and MGH researchers as joint inventors of the
inventions claimed in the patent and by declaring that MGH is a joint owner of
those inventions.

    No trial has been scheduled in either case, and none is expected until the
latter part of 2003, at the earliest.

    The Company believes MEEI's claims are without merit and intends to
vigorously defend against such action and pursue its counterclaims. The outcome
of this dispute is not presently determinable or estimable and there can be no
assurance that the matter will be resolved in favor of the Company. If the
dispute is not resolved in the Company's favor, the Company may be obliged to
pay additional royalties or damages for access to the inventions claimed in the
patents named in the suits.



                                       29

<PAGE>

    SECURITIES LITIGATION

    In January and February 2001, seven proposed securities class actions were
filed in the United States District Court for the Southern District of New York
on behalf of purchasers of the Company's common shares between August 1, 2000
and December 14, 2000. On May 3, 2001, the court ordered consolidation of the
seven actions.


    The complaints name as defendants the Company; Julia Levy, former President,
Chief Executive Officer and a current Director of the Company; and Kenneth
Galbraith, the Company's former Executive Vice President, Chief Financial
Officer and Corporate Secretary. The plaintiffs allege that the defendants
violated Sections 10(b) and 20(a) of the U.S. Securities and Exchange Act.


    The plaintiffs allege that on December 14, 2000, the Company announced that
it expected to miss its Visudyne sales estimates for the fourth-quarter 2000,
and that in response, the Company's common share price dropped approximately
31%. The plaintiffs claim that the Company's December 14, 2000 statements
contradicted prior information issued by the defendants concerning the demand
for Visudyne and the Company's prospects. The plaintiffs allege that the
defendants overstated the demand for Visudyne, did not properly disclose
reimbursement issues relating to Visudyne and that the defendants had no basis
in the months preceding the December announcement for their projections of
fourth-quarter sales. The plaintiffs further allege that the intent of the
individual defendants to mislead investors can be inferred from their sale of a
substantial amount of the Company's common shares during the months of August
and September 2000. The plaintiffs seek injunctive relief, fees and expenses and
compensatory damages in an unspecified amount.


    The Company believes that the plaintiffs' claims are without merit and
intends to vigorously defend against such actions. However, the outcome of this
claim is not presently determinable or estimable and there can be no assurance
that the matter will be resolved in favor of the Company and the other
defendants. If the lawsuit is not resolved in the Company's favor, there can be
no guarantee that the Company's insurance will be sufficient to pay for the
damages awarded to the plaintiffs.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of shareholders during the fourth
quarter of the fiscal year 2002.




                                       30

<PAGE>



                                     PART II



ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER
         MATTERS

COMMON SHARE INFORMATION

    The common shares of the Company trade in Canada on the Toronto Stock
Exchange under the symbol "QLT" and in the United States on the Nasdaq Stock
Market under the symbol "QLTI". The following table sets forth, for the periods
indicated, the high and low closing sales prices and trading volumes of the
common shares, as reported by the Toronto Stock Exchange and the Nasdaq Stock
Market.



<TABLE>
<CAPTION>
                                   THE TORONTO STOCK EXCHANGE                       THE NASDAQ STOCK MARKET
                              ------------------------------------          ---------------------------------------
                               HIGH           LOW         VOLUME               HIGH           LOW          VOLUME
                              --------      --------    ----------          ----------     ---------     ----------
                              (CAD$)         (CAD$)                           (U.S.$)       (U.S.$)
<S>                          <C>           <C>        <C>                    <C>           <C>         <C>       
2002
Fourth Quarter                 $15.58        $12.00     15,905,850             $ 9.97        $ 7.54      16,458,028
Third Quarter                   18.88         11.94     18,226,677              12.44          7.57      23,750,992
Second Quarter                  24.70         17.40     25,171,492              15.66         11.20      30,700,025
First Quarter                   40.50         26.63     20,328,349              25.48         16.70      48,540,654

2001

Fourth Quarter                 $41.23        $23.50     24,960,389             $25.82        $14.97      44,788,638
Third Quarter                   35.98         24.44     12,306,716              23.46         15.43      27,544,515
Second Quarter                  42.80         26.91     15,849,432              27.86         17.00      55,054,675
First Quarter                   53.25         31.25     19,543,363              35.13         20.00      63,575,994

</TABLE>


    The last reported sale price of the common shares on The Toronto Stock
Exchange and on The Nasdaq Stock Market on February 28, 2003 was CAD$13.56 and
US$9.09, respectively.

    As of February 28, 2003, there were 442 registered holders of the common
shares of the Company, 263 of whom were residents of the United States. Of the
total 68,560,793 common shares outstanding, the portion held by registered
holders resident in the U.S. was 20,663,330 or 30.14%.

DIVIDEND POLICY

    The Company has not declared or paid any dividends on its common shares
since inception. The Company currently anticipates that it will retain any
future earnings, if any, to finance the expansion of its business and does not
anticipate paying dividends in the foreseeable future.

EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING HOLDERS OF COMMON SHARES

    There is no law, governmental decree or regulation in Canada that restricts
the export or import of capital, or which would affect the remittance of
dividends or other payments by the Company to non-resident holders of common
shares in the Company, other than withholding tax requirements.

    There is no limitation imposed by Canadian law or the charter or other
constituent documents of the Company on the right of non-residents to hold or
vote common shares in the Company, other than those imposed by the Investment
Canada Act (Canada) (the "Investment Act").

    The Investment Act requires each individual, government or agency thereof,
corporation, partnership, trust or joint venture that is not a "Canadian" as
defined in the Investment Act (a "non-Canadian") who commences a new business
activity in Canada or acquires control of an existing Canadian business, where
the establishment or acquisition of control is not a reviewable transaction, to
file a notification with Industry 



                                       31

<PAGE>

Canada. The Investment Act generally prohibits implementation of a reviewable
transaction by a non-Canadian unless after review the minister responsible for
the Investment Act is satisfied that the investment is likely to be of net
benefit to Canada. An investment in common shares of the Company by a
non-Canadian would be reviewable under the Investment Act if it were an
investment to acquire control of the Company and the value of the assets of the
Company was $5 million or more. Higher limits apply for acquisitions by or from
World Trade Organization ("WTO") member country investors.

    The acquisition of a majority of the voting interests of an entity or of a
majority of the undivided ownership interests in the voting shares of an entity
that is a corporation is deemed to be acquisition of control of that entity. The
acquisition of less than a majority but one-third or more of the voting shares
of a corporation or of an equivalent undivided ownership interest in the voting
shares of the corporation is presumed to be acquisition of control of that
corporation unless it can be established that, on the acquisition, the
corporation is not controlled in fact by the acquiror through the ownership of
voting shares. The acquisition of less than one-third of the voting shares of a
corporation or of an equivalent undivided ownership interest in the voting
shares of the corporation is deemed not to be acquisition of control of that
corporation. Certain transactions in relation to common shares in the Company
would be exempt from review from the Investment Act, including:

    (a) acquisition of common shares by a person in the ordinary course of that
        person's business as a trader or dealer in securities;

    (b) acquisition of control of the Company in connection with the realization
        of security granted for a loan or other financial assistance and not for
        any purpose related to the provisions of the Investment Act; and

    (c) acquisition of control of the Company by reason of an amalgamation,
        merger, consolidation or corporate reorganization following which the
        ultimate direct or indirect control in fact of the Company, through the
        ownership of voting interests, remains unchanged.

    The Investment Act was amended with the Act to Implement the Agreement
Establishing the World Trade Organization to provide for special review
thresholds for WTO member country investors. Under the Investment Act, as
amended, an investment in common shares of the Company by a non-Canadian who is
a "WTO investor" (as defined in the Investment Act) would be reviewable only if
it were an investment to acquire control of the Company and the value of the
assets of the Company was equal to or greater than a specified amount (the
"Review Threshold"), which increases in stages. The Review Threshold was $209
million in 2001, $218 million in 2002, and is $223 million in 2003. This amount
is subject to an annual adjustment on the basis of a prescribed formula in the
Investment Act to reflect inflation and real growth within Canada.

CERTAIN CANADIAN FEDERAL INCOME TAX INFORMATION FOR UNITED STATES RESIDENTS

    The following is a summary of certain Canadian federal income tax
considerations generally applicable to holders of common shares who, for
purposes of the Income Tax Act (Canada) (the "Canadian Tax Act"), deal at arm's
length with the Company, hold such shares as capital property, do not carry on
business in Canada, have not been at any time residents of Canada for purposes
of the Canadian Tax Act and are residents of the United States ("U.S.
Residents") under the Canada-United States Income Tax Convention (1980) (the
"Convention").

    This summary is of a general nature only and is not intended to be, and
should not be construed to be, legal, business or tax advice to any holder of
common shares or prospective holder of common shares and no opinion or
representation with respect to any tax consequences, including, but not limited
to, Canadian federal, Canadian provincial, U.S. federal or U.S. state tax
consequences, is made to any particular holder of common shares or prospective
holder of common shares. Accordingly, holders of common shares and prospective
holders of common shares should consult with their own tax advisers for advice
with respect to the tax consequences to them having regard to their own
particular circumstances, including any consequences of purchasing, owning or
disposing of common shares arising under Canadian federal, Canadian provincial,
U.S. federal, U.S. state or local tax laws or tax laws of jurisdictions outside
the United States or Canada. No advance income tax ruling has been requested or
obtained from the Canada Customs 



                                       32

<PAGE>

and Revenue Agency (formerly Revenue Canada) to confirm the tax consequences of
any of the transactions described herein.

    This summary is based on the current provisions of the Canadian Tax Act and
the regulations thereunder (the "Regulations"), proposed amendments to the
Canadian Tax Act and/or Regulations publicly announced by the Minister of
Finance (Canada) prior to the date hereof (the "Proposed Amendments"), and the
provisions of the Convention as in effect on the date hereof. No assurance can
be given that the Proposed Amendments will be entered into law in the manner
proposed, or at all.

    This summary is not exhaustive of all possible Canadian federal income tax
consequences for U.S. Residents and does not take into account or anticipate any
changes in law, whether by legislative, administrative, governmental or judicial
decision or action, nor does it take into account Canadian provincial, U.S. or
foreign tax considerations which may differ significantly from those discussed
herein. No assurances can be given that subsequent changes in law or
administrative policy will not affect or modify the opinions expressed herein.

    A U.S. Resident will not be subject to tax under the Canadian Tax Act in
respect of any capital gain on a disposition of common shares unless such shares
derive their value principally from real property situated in Canada and
constitute taxable Canadian property, as defined in the Canadian Tax Act, of the
U.S. Resident. Common shares will constitute taxable Canadian property if, at
any time during the 60-month period immediately preceding the disposition of the
common shares, the U.S. Resident, persons with whom the U.S. Resident did not
deal at arm's length, or the U.S. Resident together with all such persons, owned
25% or more of the issued shares of any class of the capital stock of the
Company.

    Amounts in respect of common shares paid or credited or deemed to be paid or
credited as, on account or in lieu of payment of, or in satisfaction of,
dividends to a U.S. Resident will generally be subject to Canadian non-resident
withholding tax at the rate of 25%. Currently, under the Convention the rate of
Canadian non-resident withholding tax will generally be reduced to: (i) 5% of
the gross amount of dividends if the beneficial owner is a company that is
resident in the United States and that owns at least 10% of the voting stock of
the Company; or (ii) 15% of the gross amount of dividends if the beneficial
owner is some other resident of the United States.

CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION FOR UNITED STATES HOLDERS

    The following is a general discussion of certain U.S. federal income tax
considerations that may apply to a U.S. Holder (as defined below) of common
shares. This discussion is based on the United States Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations promulgated thereunder, and
judicial and administrative interpretations thereof, all as in effect on the
date hereof and all of which are subject to change possibly with retroactive
effect. This discussion addresses only those U.S. Holders that hold common
shares as "capital assets" and does not address U.S. federal income tax
considerations that may be relevant to particular U.S. Holders in light of their
individual circumstances or to U.S. Holders that are subject to special
treatment under certain U.S. federal income tax laws, such as:




                                       33

<PAGE>

o   tax exempt organizations or pension plans;

o   financial institutions;

o   insurance companies

o   investors in pass-through entities;

o   broker-dealers;

o   10% U.S. Shareholders (as defined below);

o   persons who hold their common shares as a hedge or as part of a straddle,
    constructive sale, conversion transaction, or other risk management
    transaction; or

o   persons who acquired their common shares through the exercise of employee
    stock options or otherwise as compensation.


    This discussion is for general information only and it is not intended to
be, nor should it be construed to be, legal or tax advice to any particular
holder of common shares or prospective holder of common shares. No opinion or
representation with respect to the U.S. federal income tax consequences is made.
Moreover, this discussion does not include a description of the tax laws of any
state or local governments within the United States. Accordingly, holders and
prospective holders of common shares should consult with their own tax advisors
about the U.S. federal, state, local, and foreign tax consequences of
purchasing, owning and disposing of common shares.

         U.S. Holders

    As used herein, the term "U.S. Holder" includes a holder of common shares
that is a citizen or resident of the United States, a partnership, corporation
or other entity created or organized in or under the laws of the United States
or any state thereof, certain trusts and estates, and any other person or entity
whose ownership of common shares is effectively connected with the conduct of a
trade or business in the U.S.

         Distributions on Common Shares

    Subject to the discussion of the "passive foreign investment company" rules
below, a U.S. Holder receiving dividend distributions (including constructive
dividends) with respect to common shares is required to include in gross income
for U.S. federal income tax purposes the gross amount of such distributions to
the extent of the Company's current and accumulated earnings and profits without
reduction for Canadian income tax withheld. Such Canadian tax withheld may be
credited, subject to certain limitations against the U.S. Holder's U.S. federal
income tax liability or, alternatively, may be deducted in computing the U.S.
Holder's U.S. federal taxable income by those who itemize deductions (see
discussion at "Foreign Tax Credit" below). To the extent that distributions
exceed current or accumulated earnings and profits of the Company, they will be
treated first as a return of capital up to the U.S. Holder's adjusted basis in
the common shares and thereafter as capital gain from the sale or exchange of
the common shares. Preferential tax rates for net long term capital gains may
apply to certain U.S. Holders that satisfy minimum holding period and other
requirements (see discussion at "Sale of Common Shares"). Corporate U.S. Holders
generally will not be allowed a deduction for dividends received in respect of
distributions on common shares.

    If a dividend distribution is paid in Canadian dollars, the amounts
includable in income will be the U.S. dollar value, on the date of receipt, of
the Canadian dollar amount distributed. Any subsequent gain or loss in respect
of such Canadian dollars arising from exchange rate fluctuations generally will
be ordinary income or loss.



                                       34

<PAGE>

         Foreign Tax Credit

    Subject to the limitations set forth in the Code, as modified by the United
States-Canada income tax treaty, a U.S. Holder may elect to claim a credit
against his or her U.S. federal income tax liability for Canadian income tax
withheld from dividends received in respect of common shares. Holders of common
shares and prospective holders of common shares should be aware that dividends
paid by the Company generally will constitute "passive income" for purposes of
the foreign tax credit, which could reduce the amount of foreign tax credit
available to a U.S. Holder. The rules relating to the determination of the
foreign tax credit are complex. Holders of common shares and prospective holders
of common shares should consult their own tax advisors to determine whether and
to what extent they would be entitled to such credit. U.S. Holders who itemize
deductions may instead claim a deduction for Canadian income tax withheld.

         Sale of Common Shares

    Subject to the discussion of the "passive foreign investment company" rules
below, a U.S. Holder generally will recognize capital gain or loss upon the sale
of common shares equal to the difference between (i) the amount of cash plus the
fair market value of any property received, and (ii) the U.S. Holder's tax basis
in such common shares. This gain or loss will be long-term or short-term capital
gain or loss, depending on the holding period of the U.S. Holder. Capital gains
and losses are netted and combined according to special rules in arriving at the
overall net capital gain or loss for a particular period. Preferential tax rates
for net long-term capital gains are applicable to a U.S. Holder that is an
individual, estate or trust. There currently are no preferential tax rates for
net long-term capital gains applicable to a U.S. Holder that is a corporation.

    Deductions for net capital losses are subject to significant limitations.
For U.S. Holders that are individuals, any unused portion of such net capital
loss may be carried over to be used in later tax years until such net capital
loss is thereby exhausted. For U.S. Holders that are corporations (other than
corporations subject to Subchapter S of the Code), any unused net capital loss
may be carried back three years from the loss year and carried forward for the
five years following the loss year to be offset against capital gains.

         Passive Foreign Investment Company

    Special rules are applicable to U.S. Holders that hold stock in a "passive
foreign investment company" ("PFIC"). A foreign corporation generally will be a
PFIC for any taxable year in which either (i) 75% or more of its gross income is
"passive income" (which includes interest, dividends and certain rents and
royalties) or (ii) the average percentage by value of its incoming producing
assets that are held for the production of "passive income" is 50% or more.

    The Company believes that it was not a PFIC in 2002 and anticipates that it
will not be a PFIC with respect to any subsequent taxable year. However, there
can be no assurance that the Company's determination concerning its PFIC status
will not be challenged by the Internal Revenue Service. Therefore, holders of
common shares and prospective holders of common shares are urged to consult with
their own tax advisors with respect to the application of the PFIC rules to
them.

    The Company believes that it was a PFIC in one or more taxable years prior
to 2000. Accordingly, a U.S. Holder whose common shares were held at any time
during a taxable year in which the Company was a PFIC may be required to prorate
all gains realized on the disposition of those common shares and all "excess
distributions", as specially defined, with respect to those common shares over
their entire holding period. All gains or excess distributions allocated to
prior years of the U.S. Holder (other than years prior to the first taxable year
of the Company during such U.S. Holder's holding period and beginning after
January 1, 1987 for which it was a PFIC) will be taxed at the highest tax rate
for each such prior year applicable to ordinary income. The U.S. Holder also
will be liable for interest on the foregoing tax liability for each such prior
year calculated as if such liability had been due with respect to each such
prior year. A U.S. Holder that is not a corporation must treat this interest
charge as "personal interest," which is non-deductible. The balance of the gain
or the excess distribution will be treated as ordinary income in the year of the
disposition or distribution, and no interest charge will be incurred with
respect to such balance. There exist certain other adverse tax consequences that
may apply to any U.S. Holder that owns, directly or indirectly, an interest in a
PFIC.



                                       35

<PAGE>

    These adverse tax consequences will not apply, however, if the U.S. Holder
timely filed and maintained an election to treat the Company as a qualified
electing fund ("QEF"):

o   for all taxable years during which the Company was a PFIC that are included
    wholly or partly in the U.S. Holder's holding period of those common shares;
    or

o   for at least one, but not all, of the taxable years during which the Company
    was a PFIC that are included wholly or partly in the U.S. Holder's holding
    period of those common shares, AND the U.S. Holder made an election to
    recognize as an "excess distribution" (i) under the rules described above,
    any gain that he would otherwise recognize if the U.S. Holder sold his stock
    on the first day of the U.S. Holder's taxable year for which the QEF
    election is made or (ii) if the Company was a controlled foreign corporation
    ("CFC"), the U.S. Holder's pro rata share of the corporation's earnings and
    profits on such first day.

    In addition, if the U.S. Holder failed to meet the requirements described in
the immediately preceding sentence, the U.S. Holder may make a timely election
under Section 1298(b)(1) of the Code to recognize any gain (which will be taxed
as an "excess distribution" under the rules described in the immediately
preceding sentence) as if the U.S. Holder's common shares had been sold as of
December 31, 1999. If such an election is made , the adverse tax consequences
described above (including the interest charge and the treatment of gains as
ordinary income) would not apply to any gain on the U.S. Holder's common shares
that accrues (and any distribution that is received from the Company) after the
effective date of the election. Each U.S. Holder that owned, directly or
indirectly, common shares at any time during a taxable year of the U.S. Holder
beginning before January 1, 2000 is urged to consult with his or her own tax
advisor with respect to the advantages and disadvantages of, and time for,
making an election under Section 1298(b)(1) of the Code.

    The Company intends to comply with all record-keeping, reporting and other
requirements so that U.S. Holders, at their option, may maintain a QEF election.
However, if meeting those record-keeping and reporting requirements becomes
onerous, the Company may decide, in its sole discretion, that such compliance is
impractical and will so notify U.S. Holders. UNTIL SUCH TIME, U.S. HOLDERS THAT
DESIRE TO MAINTAIN A QEF ELECTION MAY CONTACT OUR INVESTMENT RELATIONS GROUP FOR
THE PFIC ANNUAL INFORMATION STATEMENT, WHICH MAY BE USED TO COMPLETE THEIR
ANNUAL QEF ELECTION FILINGS. THIS STATEMENT IS AVAILABLE ON THE COMPANY'S
WEBSITE AT: WWW.QLTINC.COM.

    THE PFIC AND QEF ELECTION RULES ARE COMPLEX. ACCORDINGLY, HOLDERS AND
PROSPECTIVE HOLDERS OF COMMON SHARES ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE IMPACT OF THESE RULES ON THEIR INVESTMENT OR PROSPECTIVE
INVESTMENT IN THE COMPANY.



                                       36

<PAGE>

         Controlled Foreign Corporation

    Generally, if more than 50% of the voting power of all classes of stock or
the total value of the stock of the Company is owned, directly or indirectly, by
U.S. Holders, each of whom own 10% or more of the total combined voting power of
all classes of stock of the Company ("10% U.S. Shareholders"), the Company would
be treated as a CFC under Subpart F of the Code. For tax years of U.S. Holders
beginning after 1997, if the Company qualifies as a CFC, the PFIC rules
generally will not apply to those U. S. Holders that are 10% U.S. Shareholders.
The classification of the Company as a CFC would effect many complex results,
including the required inclusion in income by 10% U.S. Shareholders of their pro
rata shares of Subpart F income of the Company. In addition, under Section 1248
of the Code, gain from the sale or exchange of common shares by a U.S. Holder
who is or was a 10% U.S. Shareholder at any time during the five-year period
ending with the sale or exchange is treated as ordinary dividend income to the
extent of earnings and profits of the Company attributable to the common shares
sold or exchanged. Because of the complexity of Subpart F, and because it is not
clear that Subpart F would apply to U.S. Holders, a more detailed review of
these rules is outside the scope of this discussion.

         Legislative Proposals.

    Legislation has been introduced in the United States Congress that would
allow U.S. persons to receive dividends tax-free in certain circumstances. In
general, that legislation only applies to United States corporations and foreign
corporations that are engaged in a trade or business within the United States
and thus it is not expected that this legislation, if enacted, would apply to
the Company.

         Information Reporting and Backup Withholding

    United States information reporting and backup withholding requirements may
apply with respect to the payment to U.S. Holders of dividends with respect to,
or proceeds from the sale of, common shares. Under Treasury regulations
currently in effect, non-corporate holders may be subject to backup withholding
currently at a 30% rate with respect to dividends when such holder (1) fails to
furnish or certify a correct taxpayer identification number to the payor in the
required manner, (2) is notified by the Internal Revenue Service that it has
failed to report payments of interest or dividends properly or (3) fails, under
certain circumstances, to certify that it has been notified by the Internal
Revenue Service that it is subject to backup withholding for failure to report
interest and dividend payments.


                                       37

<PAGE>





ITEM 6.  SELECTED FINANCIAL DATA

ANNUAL FINANCIAL DATA



<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,                            2002        2001        2000        1999         1998
-----------------------                         ---------   ---------   ---------   ---------    ---------
(In thousands except per share information)

<S>                                           <C>         <C>         <C>         <C>          <C>      
CONSOLIDATED STATEMENT OF INCOME DATA
   Total revenues                               $ 110,513   $  83,375   $  32,399   $  17,689    $   8,320
   Research and development costs                  42,252      42,909      32,802      32,457       22,983
   Net income (loss)  available to common
     shareholders                                  13,595      71,512       4,399     (24,560)     (17,918)
   Basic net income (loss) per common share          0.20        1.05        0.07       (0.40)       (0.34)
   Diluted net income (loss) per common share        0.20        1.04        0.06       (0.40)       (0.34)

CONSOLIDATED BALANCE SHEET DATA
   Cash, cash equivalents and short-term        
     investment securities                      $ 207,935   $ 162,774   $ 165,430   $ 178,294    $  50,977
   Working capital                                260,127     223,585     201,319     180,724       55,500
   Total assets                                   345,841     317,933     259,957     222,938       67,251
   Long term obligations                               --          --       8,716          --           --
   Total shareholders' equity                     313,545     292,701     235,982     199,995       55,022

</TABLE>


QUARTERLY FINANCIAL DATA

    Set forth below is selected unaudited financial information for the fiscal
quarters of 2002 and 2001.


<TABLE>
<CAPTION>

THREE MONTHS ENDED                             DECEMBER 31    SEPTEMBER 30      JUNE 30         MARCH 31
-----------------------                        -----------    ------------     --------        ---------    
(In thousands  except per share information)

<S>                                           <C>            <C>             <C>             <C>     
2002
   Total revenues                               $ 33,002       $ 28,713        $ 24,656        $ 24,142
   Research and development costs                 12,682         10,702          10,390           8,480
   Net income (loss)  available to common
     shareholders                                   (827)         5,903           4,124           4,393
   Basic net income (loss) per common share        (0.01)          0.09            0.06            0.06
   Diluted net income (loss) per common share      (0.01)          0.09            0.06            0.06

2001
   Total revenues                               $ 27,889       $ 20,201        $ 20,408        $ 14,877
   Research and development costs                  8,280         19,864           9,762           5,003
   Net income (loss) available to common
     shareholders                                 61,918         (1,934)          3,248           8,280
   Basic net income (loss) per common share         0.91          (0.03)           0.05            0.12
   Diluted net income (loss) per common share       0.90          (0.03)           0.05            0.12

</TABLE>



                                       38

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

    The following information should be read in conjunction with the Company's
2002 consolidated financial statements and notes thereto, which are prepared in
accordance with generally accepted accounting principles ("GAAP") in the United
States ("U.S."). All amounts following are expressed in U.S. dollars unless
otherwise indicated.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    The following discussion and analysis of financial conditions and results of
operations contains forward-looking statements of the Company, within the
meaning of the Private Securities Litigation Reform Act of 1995, which involve
known and unknown risks, uncertainties and other factors which may cause QLT's
actual results to differ materially from any future results, performance or
achievements expressed or implied by such statements. Forward-looking statements
include, but are not limited to, those with respect to: anticipated levels of
sales of Visudyne(R), including patient and physician demand for Visudyne
therapy; anticipated futurE operating results; anticipated timing for and
receipt of reimbursement approvals for Visudyne therapy and other QLT products;
the anticipated outcome of pending patent and securities litigation against QLT;
the anticipated timing and progress of clinical trials; the anticipated timing
of regulatory submissions for expanded uses for Visudyne and for QLT's other
products, including tariquidar; and the anticipated timing and receipt of
regulatory approvals for expanded uses for Visudyne and for QLT's other
products, including tariquidar. These statements are predictions only and actual
events or our actual results may differ materially. Factors that could cause
such actual events or our actual results to differ materially from any future
results expressed or implied by such forward-looking statements include, but are
not limited to, the ability and efforts of QLT's alliance partner, Novartis
Ophthalmics AG, to commercialize and market Visudyne, the outcome of pending
patent and securities litigation against QLT, QLT's ability to maintain and
expand its intellectual property position, the timing and success of planned or
existing clinical trials for Visudyne and for QLT's other products, including
tariquidar; the outcome of QLT's applications for regulatory approvals for
expanded uses for Visudyne and for QLT's other products, including tariquidar;
the successful development or acquisition of complementary or supplementary
products or product candidates, technologies or businesses, as well as the risk
factors described in this Report under the headings "Business -- Risk Factors",
"Legal Proceedings", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the "Notes to Consolidated Financial
Statements".

    OVERVIEW

    The Company is a bio-pharmaceutical company engaged in the development and
commercialization of innovative products in ophthalmology and oncology and in
other fields where the product can be marketed by a focussed specialtly sales
and marketing team. The Company is a pioneer in the field of photodynamic
therapy ("PDT"), a field of medicine that uses photosensitizers (light-activated
drugs) in the treatment of disease, and is now also developing pharmaceutical
products that do not employ photodynamic therapy.

    Visudyne, the Company's commercial product, is a photosensitizer used to
treat predominantly classic subfoveal choroidal neovascularization ("CNV") in
patients with wet age-related macular degeneration ("AMD"), the leading cause of
severe vision loss in people over the age of 50 in North America and Europe, and
other ocular conditions. Visudyne has been approved in over 65 countries,
including the United States, Canada and the European Union, for the treatment of
predominantly classic subfoveal CNV in wet AMD. In addition, Visudyne has been
approved in over 50 countries for extended indications, including occult CNV in
the European Union, Australia and New Zealand, CNV due to pathologic myopia in
the United States and the European Union, and CNV due to presumed ocular
histoplasmosis in the United States.

    Currently the Company is developing photosensitizers for the treatment of
certain forms of non-melanoma skin cancer, benign prostatic hyperplasia and
androgenetic alopecia (commonly known as male pattern baldness). In addition to
developing photodynamic therapy product candidates, the Company is developing
other products by itself and in collaboration with other companies for the
treatment of cancer, and other conditions, including tariquidar for multi-drug
resistance in cancer. The Company continues to seek growth opportunities and
build its product pipeline by developing new indications for Visudyne,
progressing with 



                                       39

<PAGE>

both early and late stage programs, and pursuing potential strategic
acquisitions of products, product candidates, technologies or other businesses.

    The Company operates in a single reportable segment. The Company's
profitability depends upon the commercial success of Visudyne in major markets
worldwide and the achievement of product development objectives. As of December
31, 2002, the Company had an accumulated deficit of $52.9 million and total
shareholders' equity of $313.5 million.

CRITICAL ACCOUNTING POLICIES

    In preparing the Company's consolidated financial statements, management is
required to make certain estimates, judgements and assumptions that the Company
believes 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, provisions for non-completion of inventory, assessment of the
net realizable value of long-lived assets, accruals for contract manufacturing
and research and development agreements, allocation of costs to manufacturing
under a standard costing system, taxes and contingencies. The significant
accounting policies which the Company believes are the most critical to aid in
fully understanding and evaluating its reported financial results include the
following:

Basis of Presentation

    Effective December 31, 2002, the Company changed its primary accounting
standard from Canadian GAAP to U.S. GAAP in order to provide information on a
more comparable basis with the majority of the companies in the Company's peer
group. Consequently, the consolidated financial statements of the Company for
2002 have been prepared in accordance to U.S. GAAP and for consistency, all
prior period financial statements and financial information are also prepared in
accordance to U.S. GAAP.

Reporting Currency and Foreign Currency Translation

    Effective December 31, 2002, the Company changed its reporting currency to
the U.S. dollar from the Canadian dollar. The consolidated financial statements
of the Company 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 rate. Revenue and expenses are translated at a weighted average rate
of exchange for the respective years. Translation gains and losses are included
as part of the cumulative foreign currency translation adjustment which is
reported as a component of shareholders' equity.

    The financial information for the years ended December 31, 2001 and 2000 is
presented in U.S. dollars as if the U.S. dollar had been used as the reporting
currency during those periods.

    The Company adopted the U.S. dollar as its reporting currency in order to
provide information on a more comparable basis with the majority of the
companies in the Company's peer group. The Company retained the Canadian dollar
as its functional currency.

Revenue Recognition

    Revenue from Visudyne(R) consists of the Company's 50% share of pre-tax
profits generated from the Company's collaborative manufacturing, marketing and
distribution arrangement with Novartis Ophthalmics, revenue from the sale of
bulk manufactured Visudyne product to Novartis Ophthalmics, and reimbursement
from Novartis Ophthalmics of third party royalties, and specified other costs.
Pre-tax profits are determined by Novartis Ophthalmics and the Company and are
derived by taking net sales of Visudyne to third parties, less manufacturing,
selling, marketing and distribution costs, and third party royalties. The
Company recognizes revenue on product sales only upon final delivery to third
parties where collection is reasonably assured. Deferred revenue represents
amounts received by the Company for inventory shipped at cost to Novartis
Ophthalmics for sale to third parties. Proceeds of the QLT-Novartis Ophthalmics
Alliance from Visudyne sales are received initially in trust by Novartis
Ophthalmics for the equal benefit of Novartis 



                                       40

<PAGE>

Ophthalmics and the Company and are held until distributed in accordance with
the agreement between the Company and Novartis Ophthalmics.

Cost of Sales

    Cost of sales, consisting of expenses related to the production of bulk
Visudyne sold to Novartis Ophthalmics, and royalties on Visudyne sales, are
charged against earnings in the period of the related product sale by Novartis
Ophthalmics to third parties. The Company utilizes 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. Overhead expenses comprise direct and indirect support
activities related to the manufacture of bulk Visudyne and involve costs
associated with activities such as quality inspection, quality assurance, supply
chain management, safety and regulatory. Overhead expenses are allocated to
inventory during each stage of the manufacturing process under a standard
costing system, and eventually to cost of sales as the related products are sold
by Novartis Ophthalmics to third parties. The Company records a provision for
the non-completion of product inventory based on its history of batch
completion.

Stock-Based Compensation

    In accordance with the provisions of SFAS No. 123 "Accounting for
Stock-based Compensation" ("SFAS 123"), the Company applies Accounting
Principles Board ("APB") Opinion No. 25 and related interpretations in the
accounting for employee stock option plans. SFAS 123 requires that all
stock-based awards made to non-employees be measured and recognized using a fair
value based method. The standard encourages the use of a fair value based method
for all awards granted to employees, but only requires the use of a fair value
based method for direct awards of stock, stock appreciation rights, and awards
that call for settlement in cash or other assets. Estimates of fair value are
determined using the Black-Scholes model. The use of this model requires certain
assumptions regarding the volatility, term, and risk free interest rate
experienced by the holder. Awards that a company has the ability to settle in
stock are recorded as equity, whereas awards that the entity is required to or
has a practice of settling in cash are recorded as liabilities. The Company has
adopted the disclosure only provision for stock options granted to employees and
directors, consistent with SFAS 123.

Research and Development

    Research and development costs consist of direct and indirect expenditures,
including a reasonable allocation of overhead expenses, associated with the
Company's 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. Research and development costs are expensed as
incurred. 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 expensed as
incurred and included in general and administrative expenses.



                                       41

<PAGE>

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 differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and 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 are included as part of provision for
(recovery of) income taxes.

Recently Issued Accounting Standards

     In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of, and
the accounting and reporting provisions of Accounting Principles Board Opinion
("APB") No. 30, Reporting the Results of Operations--Report the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS No. 144 requires that companies (1)
recognize an impairment loss only if the carrying amount of a long-lived asset
is not recoverable based on its undiscounted future cash flows and (2) measure
an impairment loss as the difference between the carrying amount and fair value
of the asset. In addition, SFAS No. 144 provides guidance on accounting and
disclosure issues surrounding long-lived assets to be disposed of by sale. The
adoption of this statement in 2002 did not have a material impact on the
Company's financial position or results of operations. No material impairment
relating to property or equipment have been identified by the Company for the
years ended December 31, 2002, 2001 and 2000. However, in the fourth quarter of
2002, based on an assessment and the recent events affecting Kinetek, the
Company wrote off its entire investment in Kinetek shares and recorded a
writedown of $6.2 million. There were no other impairment adjustments to
investments recorded in 2002, 2001 and 2000.

    In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Among other things, SFAS No. 145 rescinds both SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and the amendment of
SFAS No. 4, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Through this rescission, SFAS No. 145 eliminates the requirement
(in both SFAS No. 4 and SFAS No. 64) that gains and losses from the
extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. Generally, SFAS No.
145 is effective for transactions occurring after May 15, 2002. The Company does
not expect SFAS No. 145 to have a material impact on the Company's results of
operations or its financial position.

    In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement provides guidance on the
recognition and measurement of liabilities associated with exit and disposal
activities. Under SFAS No. 146, liabilities for costs associated with exit or
disposal activities should be recognized when the liabilities are incurred and
measured at fair value. This statement is effective prospectively for exit or
disposal activities initiated after December 31, 2002. The Company does not
expect the adoption of SFAS No. 146 to have a material impact on the Company's
consolidated financial position or results of operations.

    In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN
45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies, relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. FIN 45 requires that upon issuance
of a guarantee, the guarantor must recognize a liability for the fair value of
the obligation it assumes under that guarantee. The initial recognition and
measurement provisions are effective for guarantees issued or modified after
December 31, 2002. The Company does not expect the adoption of FIN 45 to have a
material impact on its financial position or its results of operations.

    In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of FASB Statement No. 123.
This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company's consolidated
financial statements currently comply with the disclosure requirements of SFAS
No. 148.



                                       42

<PAGE>

COMPARISON OF YEARS ENDED DECEMBER 31, 2002 AND 2001
----------------------------------------------------

    For the year ended December 31, 2002, the Company recorded net income of
$13.6 million, or $0.20 per common share. These results compare with net income
of $71.5 million, or $1.05 per common share for the year ended December 31,
2001. During the fourth quarter of 2001, the Company recognized deferred tax
assets of $56.4 million, which favorably affected 2001 earnings per share by
$0.83. During the fourth quarter of 2002, the Company recorded a restructuring
charge of $2.9 million relating to a reduction in work force, and a writedown of
$6.2 million related to the impairment of the Company's equity investment in
Kinetek Pharmaceuticals, Inc. ("Kinetek"). These two special charges negatively
impacted 2002 earnings per share by $0.12.

REVENUES

REVENUE FROM VISUDYNE(R)

The Company's revenues from the Visudyne alliance were determined as follows:


<TABLE>
<CAPTION>
                                                             For the year ended 
                                                                 December 31,
                                                           ----------------------
(In thousands)                                                2002         2001
--------------                                             ---------    ---------
<S>                                                      <C>          <C>      
Visudyne(R) sales by Novartis Ophthalmics                  $ 287,098    $ 223,343
Less:  Manufacturing and other costs                         (23,028)     (18,066)
Less:  Sales, marketing and distribution expenses           (107,293)     (87,622)
                                                           ---------    ---------
Net operating income from Visudyne(R) sales                $ 156,777    $ 117,656
                                                           =========    =========

The Company's 50% share                                    $  78,388    $  58,828
Add: Manufacturing and other reimbursements                   25,699       20,694
                                                           ---------    ---------
Total revenue from Visudyne(R)                             $ 104,087    $  79,522
                                                           =========    =========

</TABLE>


    For the year ended December 31, 2002, approximately 59% of total Visudyne
sales by Novartis Ophthalmics were in the United States, compared to
approximately 63% in 2001.

    For the year ended December 31, 2002, revenue from the Visudyne alliance
increased by 31% over 2001. This increase is due primarily to the increased
penetration in key markets, such as France, Germany and Italy, and to ongoing
geographic and label expansion throughout the world.

CONTRACT RESEARCH AND DEVELOPMENT REVENUE

    The Company receives non-refundable research and development funding from
Novartis Ophthalmics and other strategic partners which is recorded as contract
research and development revenue. For the year ended December 31, 2002, contract
research and development revenue totalled $6.4 million, increased by 67% over
2001. This gain resulted from increased development work by the Company on
Visudyne programs with Novartis Ophthalmics, and on tariquidar programs with
Xenova Limited.


COSTS AND EXPENSES

COST OF SALES

    For the year ended December 31, 2002, cost of sales of $19.1 million were
28% higher than 2001 due primarily to increases in Visudyne sales. During the
first half of 2002, the Company received FDA approval for a secondary
manufacturing site. As a result, the Company reviewed its provision related to
non-completion of product inventory and reduced its provision by $1.3 million
during the second quarter of 2002.



                                       43

<PAGE>

RESEARCH AND DEVELOPMENT

    Research and development ("R&D") expenditures totalled $42.3 million for the
year ended December 31, 2002, down by 2% compared to 2001. R&D expenditures in
2001 included the purchase of development and marketing rights from Xenova and
Kinetek totalling $11.1 million. Excluding these costs, R&D expenditures in 2002
would have been 32% higher than 2001. This increase in R&D spending is due to
increased clinical development costs for the following projects:

-   Tariquidar (which commenced two Phase III trials in 2002);

-   Multiple basal cell carcinoma ("MBCC") (which also commenced two Phase III
    trials in 2002);

-   QLT0074 androgenetic alopecia and benign prostatic hyperplasia) (which
    commenced or prepared to commence Phase I/II trials in 2002); and

-   Visudyne in Occult.

    Approximately $16.9 million of 2002 R&D expenditures were Visudyne-related
with the remaining $25.4 million related to the rest of the Company's product
pipeline.

Novartis Ophthalmics - Visudyne(R)

    Under the terms of the February 6, 1995 agreement with Novartis Ophthalmics
to pursue worldwide joint development and commercialization of photodynamic
therapy products, including Visudyne, as potential treatments for certain eye
diseases, the Company is responsible for 40% to 50% of R&D costs for Visudyne
and Novartis Ophthalmics is responsible for the remaining 50% to 60%. The
Company and Novartis Ophthalmics reconcile joint R&D costs, on a quarterly
basis, and when it results in funding payments to the Company, the Company
records such non-refundable amounts as contract research and development
revenue.

    On July 23, 2001, the Company and Novartis Ophthalmics announced the
expansion of the existing strategic alliance to co-develop photodynamic therapy
with verteporfin to treat skin cancer and other dermatological conditions. Under
the terms of this expanded co-development agreement, Novartis Ophthalmics is
funding future development costs of verteporfin in multiple basal cell carcinoma
(a form of non-melanoma skin cancer) to a maximum of $9.7 million, beyond which
profits and development costs will be shared equally by the Company and Novartis
Ophthalmics. The Company will receive potential milestone payments of $0.6
million upon filing of a submission for marketing approval for the use of
verteporfin in an indication within the dermatological field in North America or
Europe, and $1.0 million upon receipt of such approval.

Xenova Limited - Tariquidar

    In August of 2001, the Company entered into an exclusive development and
license agreement for tariquidar, a P-gp inhibitor for multi-drug resistance in
oncology, with Xenova Limited ("Xenova"). Under the agreement, the Company
assumed the marketing rights of tariquidar for North America and responsibility
for continued development of the product in exchange for payment to Xenova of an
initial licensing fee of $10.0 million and future milestone payments up to a
maximum of $50.0 million. Xenova has agreed to contribute up to $2.0 million
towards QLT's development efforts. Upon commercialization, the Company will pay
royalties to Xenova in the range of 15% to 22% based on the level of North
American sales.

Kinetek Pharmaceuticals, Inc. - Signal Transduction Inhibitors

    On June 7, 2001, the Company entered into a long-term research, development
and license agreement with Kinetek to develop compounds known as signal
transduction inhibitors for the treatment of ocular, immune system and kidney
diseases. The transaction included an equity investment by the Company valued at
$6.2 million for 3.14 million common shares of Kinetek stock, plus an option,
valued at $1.1 million, to obtain exclusive licenses for up to five compounds
for the treatment of ocular, immune system and/or kidney diseases. The value
attributable to the common shares was based on the cash consideration paid by
third parties for Kinetek common shares on the same date as the Company's
investment. Under the terms of the 



                                       44

<PAGE>

option, the Company has the right to take over the clinical development and
commercialization of each compound at a specified stage of development in
exchange for milestone payments of up to a maximum of $59.5 million for the five
compounds, including royalties and equity investments in Kinetek. During the
fourth quarter of 2002, the Company contracted an impairment assessment of
Kinetek by an independent valuation consultant. Based on this assessment and the
recent events affecting Kinetek, the Company has written off its investment in
common shares of Kinetek and recorded a write-down of $6.2 million.

    Under this agreement, upon meeting certain conditions, Kinetek may demand
that a convertible loan facility of up to $3.3 million be made available by the
Company to Kinetek, during the period which commenced January 1, 2002 and ending
June 7, 2004 at an interest rate equal to 12% in excess of the Royal Bank of
Canada's prime lending rate, compounding quarterly. At December 31, 2002, no
funds had been advanced to Kinetek in relation to this Convertible Loan Facility
and the Company does not expect that Kinetek is or will be in a position to
satisfy the stringent conditions for the loan which are set out in the
agreement.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    Selling, general and administrative ("SG&A") expenses include overhead
expenses associated with the manufacture of bulk Visudyne. For the year ended
December 31, 2002, SG&A expenses of $16.1 million were 111% or $8.5 million
higher than 2001. SG&A expenses in 2001 were unusually low due to the absorption
to inventory of overhead expenses associated with exceptionally high
manufacturing levels in the second half of that year. Additionally, higher
directors' and officers' (D&O) insurance premiums, salaries, and legal and
consulting fees contributed to the increase in SG&A.

DEPRECIATION EXPENSE

    Depreciation expense relates mainly to the depreciation of property and
equipment. Depreciation expense for 2002 of $3.1 million was 11% higher than the
amount recorded in the same period in 2001.

RESTRUCTURING

    In the fourth quarter of 2002, the Company restructured its operations to
reduce operating expenses and concentrate its resources on key product
development programs and business initiatives. The Company reduced its overall
headcount by 62 people or 17%. The Company provided affected employees with
severance and support to assist with outplacement. As a result, the Company
recorded a $2.9 million restructuring charge in the fourth quarter of 2002
related to severance and termination costs. The Company expects to complete
final activities associated with the restructuring in 2003. At December 31,
2002, restructuring charges of $0.3 million were paid out, and the accrued
liability relating to the restructuring was $2.6 million. During January of
2003, $1.3 million of the restructuring charges was paid out, reducing the
accrued liability related to the restructuring to $1.3 million.

INVESTMENT AND OTHER INCOME

NET FOREIGN EXCHANGE (LOSSES) GAINS

    Net foreign exchange (losses) gains comprise (losses) gains from the impact
of foreign exchange fluctuations on the Company's cash and cash equivalents,
derivative financial instruments, foreign currency receivables and foreign
currency payables. For the year ended December 31, 2002, the Company recorded
net foreign exchange losses of $0.3 million versus a net foreign exchange gain
of $3.8 million in the same period in 2001. The losses in the current year were
due to losses on the Company's foreign currency cash holdings as well as losses
on foreign currency derivative financial instruments. (See Liquidity and Capital
Resources - Interest and Foreign Exchange Rates).



                                       45

<PAGE>



    Details of the Company's net foreign exchange (losses) are as follows:



<TABLE>
<CAPTION>
                                            For the year ended
                                               December 31,
                                            ------------------
(In thousands)                                2002       2001
--------------                              -------    -------
<S>                                       <C>        <C>    
Cash and cash equivalents                   $  (887)   $ 3,370
Foreign exchange contracts                     (620)       (50)
Foreign currency receivables and payables     1,229        494
                                            -------    -------
Net foreign exchange (losses) gains         $  (278)   $ 3,814
                                            =======    =======
</TABLE>


INTEREST INCOME

    Interest income of $4.8 million for the year ended December 31, 2002, was
29% lower compared to the same period in 2001. This decrease, despite rising
cash reserves, was due to reduced yields on the Company's short-term
investments. The Company's treasury policy is focused on minimizing risk of loss
of principal.

(WRITEDOWN) GAIN ON INVESTMENTS

    During the fourth quarter of 2002, the Company contracted an impairment
assessment by an independent valuation consultant. Based on this assessment and
recent events affecting Kinetek, the Company wrote off its $6.2 million
investment in Kinetek shares.

    During 2001, the Company sold its short-term investment in Axcan Pharma Inc.
("Axcan") for net proceeds of $11.5 million, resulting in a gain of $3.4
million.

INCOME TAXES

    Provision for income taxes was $11.4 million for the year ended December 31,
2002, compared to recovery of income taxes of $42.2 million in 2001. On December
31, 2001, the Company reversed its valuation allowance and recognized deferred
income tax assets relating to prior year losses and unclaimed R&D expenses, as
the Company's stage of development and operations suggested that it was more
likely than not that the tax assets would be realized. As such, beginning in
2002, the Company began providing for income tax expenses.

    As at December 31, 2002, the Company had $44.0 million of R&D expenditures
available as deductions for tax purposes that have no expiration date. The
Company also has non-capital loss carry forward balances for Canadian income tax
purposes of $14.3 million that are available to offset future taxable income and
will expire at various dates through 2006. The deferred tax benefit of these R&D
expenditures, non-capital losses and other temporary differences creating
deferred tax assets is estimated to be approximately $31.1 million, and is
ultimately subject to final determination by taxation authorities.

    The realization of the Company's deferred tax assets is primarily dependent
on generating sufficient taxable income prior to expiration of any loss carry
forward balances. During the fourth quarter of 2002, the Company set up a
valuation allowance of $1.1 million against the tax effect of the writedown of
its investment in Kinetek. The valuation allowance is reviewed periodically and
if the "more likely than not" criterion changes for accounting purposes then the
valuation allowance will be adjusted accordingly. (See Note 13 in "Notes to the
Consolidated Financial Statements").


COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000
----------------------------------------------------

RESULTS OF OPERATIONS

    For the year ended December 31, 2001, the Company recorded a net profit of
$71.5 million, or $1.05 per common share. These results compare with a net
profit of $4.4 million, or $0.07 per common share for the 



                                       46

<PAGE>

year ended December 31, 2000. In the fourth quarter of 2001, the Company
recognized deferred tax assets related to prior years, amounting to $56.4
million, favorably affecting earnings per share for the year by $0.83.
Additional details of this tax asset are described below in the section "Income
Taxes".

REVENUES

REVENUE FROM VISUDYNE(R)

    The Company's revenue from the sales of Visudyne was determined as follows:


<TABLE>
<CAPTION>
                                                          For the year ended  For nine months ended
(In thousands)                                             December 31, 2001  December 31, 2000
--------------                                             -----------------  -----------------
<S>                                                         <C>               <C>      
Visudyne(R)sales by Novartis Ophthalmics                      $ 223,343         $  94,371
Less: Manufacturing and other costs                             (18,066)           (7,757)
Less: Sales, marketing and distribution expenses                (87,622)          (54,029)
                                                              ---------         ---------
Net operating income from Visudyne(R)sales                    $ 117,656         $  32,585
                                                              =========         =========

The Company's 50% share                                       $  58,828         $  16,292
Add:  Manufacturing and other reimbursements                     20,694             8,638
                                                              ---------         ---------
Total revenue from Visudyne(R)                                $  79,522         $  24,930
                                                              =========         =========

</TABLE>


    Revenue from Visudyne of $79.5 million for the year ended December 31, 2001
was 219% higher than the $24.9 million recorded in fiscal 2000. The increase was
due primarily to fiscal 2001 being the first full year of commercialization of
Visudyne and further regulatory approvals and reimbursement approvals in markets
worldwide. For the year ended December 31, 2001, approximately 63% of total
Visudyne sales were in the U.S. compared to 66% in 2000.

CONTRACT RESEARCH AND DEVELOPMENT REVENUE

    The Company receives non-refundable research and development funding from
Novartis Ophthalmics which is recorded as contract research and development
revenue. For the year ended December 31, 2001, contract research and development
revenue of $3.9 million decreased by 24% compared to fiscal 2000 contract
research and development revenue of $5.1 million. This is due mainly to Novartis
Ophthalmics' assuming a greater proportion of research and development
activities for the joint Visudyne program.

ROYALTIES ON PRODUCT SALES - PHOTOFRIN(R)

    In June of 2000, the Company finalized the sale of the worldwide rights to
Photofrin to Axcan . Under the terms of the sale, the Company transferred to
Axcan the worldwide development, manufacturing and marketing rights to Photofrin
in exchange for an initial cash payment of $1.7 million, a $2.7 million deferred
payment, 1,283,333 common shares of Axcan and $9.1 million in preferred shares
of Axcan which were redeemable within twelve months in cash or additional common
shares of Axcan. In addition, the Company is entitled to future milestone
payments of up to $10.1 million, payable in cash or preferred shares, based on
future events. Concurrent with the sale to Axcan, the Company terminated its
agreement with Ligand Pharmaceuticals Inc., the Company's Photofrin marketing
and distribution partner in Canada, and agreed to assign its Japanese Photofrin
royalty rights under its agreement with Wyeth-Ayerst Japan, Ltd. to Axcan. The
Company also re-acquired the exclusive Photofrin marketing and distribution
rights in the U.S. and Caribbean from Sanofi-Synthelabo Inc. in exchange for a
portion of the consideration received by the Company from Axcan at the closing
date and rights to receive a portion of the future consideration payable to the
Company by Axcan. The Company recorded earned royalties on sales of Photofrin by
these distribution partners up to the closing of the transaction on June 8,
2000. At closing, Axcan assumed responsibility for the marketing efforts for
Photofrin and future costs and obligations relating to the Photofrin business.
As a result, the Company no longer receives royalty payments from Photofrin
sales.



                                       47

<PAGE>

    During 2001, Axcan redeemed the preferred shares and the Company sold all of
its Axcan common shares. Further details are described below in the section
"Investment and Other Income - (Writedown) Gain on Investments".

REVENUE FROM COLLABORATIVE ARRANGEMENTS

    During the third quarter of 2000, the Company recorded net milestone revenue
of $1.7 million from Axcan resulting from the receipt of FDA approval to market
the Diomed 630 nm diode laser co-developed by the Company and Diomed Inc. for
use in conjunction with Photofrin.

    The extent and timing of any future licensing fees or milestone payments are
dependent upon the terms of current and any additional future agreements,
including the achievement of development milestones defined therein.


COSTS AND EXPENSES

COST OF SALES

    During 2001, cost of sales increased by 116% compared to 2000, due primarily
to higher Visudyne sales.

MARKET AND BUSINESS DEVELOPMENT COSTS

    Market and business development costs represented the Company's equal share
of initial costs associated with planning and initiation of an Expanded Access
("EA") Program for Visudyne therapy, net of EA pre-commercial or commercial
revenues realized, and marketing and pre-launch costs for the first quarter of
2000.

    Effective with the second quarter of 2000, the Company commenced recording
its share of revenues from Visudyne as a revenue item on the statement of
income. See "Revenue from Visudyne(R)".

RESEARCH AND DEVELOPMENT

    R&D expenditures for the year ended December 31, 2001 were $42.9 million.
This represented an increase of 31% compared to fiscal 2000 R&D costs of $32.8
million. This increase in R&D expenditures was due primarily to the purchase of
development and marketing rights from Xenova and Kinetek totalling $11.1
million. Approximately $15.2 million of R&D costs were Visudyne-related, with
the remaining $27.7 million related to the Company's product pipeline.


                                       48

<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    SG&A expenses include overhead expenses associated with the manufacture of
bulk Visudyne. For the year ended December 31, 2001, SG&A expenses of $7.6
million were 25% lower compared to fiscal 2000 selling, general and
administrative expenses of $10.2 million. A primary contributor to this decline
was unusually high absorption to inventory of overhead expenses associated with
exceptionally high manufacturing levels in the second half of 2001.

DEPRECIATION EXPENSE

    Depreciation expense relates mainly to the depreciation of property and
equipment. Depreciation expense of $2.8 million was 33% higher compared to
fiscal 2000 depreciation expense of $2.1 million, due primarily to the
depreciation impact of Phase II of the Company's new facility completed in
November 2000.

INVESTMENT AND OTHER INCOME

NET FOREIGN EXCHANGE (LOSSES) GAINS

    Net foreign exchange (losses) gains comprise (losses) gains from the impact
of foreign exchange fluctuations on the Company's cash and cash equivalents,
derivative financial instruments, foreign currency receivables and foreign
currency payables. For the year ended December 31, 2001, the Company recorded
net foreign exchange gains of $3.8 million versus net foreign exchange gains of
$4.6 million in the same period in 2000. The gains in both years were due
primarily to gains on the Company's foreign currency cash holdings. (See
Liquidity and Capital Resources - Interest and Foreign Exchange Rates)

Details of the Company's net foreign exchange gains are as follows:


<TABLE>
<CAPTION>
                                            For the year ended
                                                December 31,
                                            ------------------
(In thousands)                                2001       2000
--------------                              -------    -------
<S>                                       <C>        <C>    
Cash and cash equivalents                   $ 3,370    $ 3,846
Foreign exchange contracts                      (50)        --
Foreign currency receivables and payables       494        723
                                            -------    -------
Net foreign exchange gains                  $ 3,814    $ 4,569
                                            =======    =======

</TABLE>


INTEREST INCOME

    Interest income of $6.8 million for the year ended December 31, 2001, was
36% lower compared to the same period in 2000. This decrease, despite rising
cash reserves, was due to reduced yields on the Company's short-term
investments. The Company's treasury policy is focused on minimizing risk of loss
of principal.

(WRITEDOWN) GAIN ON INVESTMENTS

    The Company's short-term investment in Axcan consisted of Axcan common
shares and preferred shares and was acquired as part of the consideration
received from the sale of the worldwide rights to Photofrin to Axcan. During
2001, the Company sold its short-term investment in Axcan for net proceeds of
$11.5 million, resulting in a gain of $3.4 million.

    In June of 2000, the Company finalized the sale of the worldwide rights to
Photofrin to Axcan. Under the terms of the sale, the Company transferred to
Axcan the worldwide development, manufacturing and marketing rights to Photofrin
in exchange for consideration consisting of cash, Axcan preferred shares, Axcan
common shares, and a deferred payment valued at $20.2 million. After deducting
the cost of re-acquiring from Sanofi Synthelabo Inc. the U.S. and Carribbean
rights to Photofrin, the Company recorded a gain of $10.6 million from the sale
of Photofrin rights to Axcan.



                                       49

<PAGE>

    In November of 2000, the Company finalized the sale of its Optiguide Fiber
Optics business to Diomed. Under the terms of the sale, the Company transferred
to Diomed its rights to commercialize Optiguide Fiber Optics in exchange for an
initial cash payment of $25,000, a $365,000 short-term receivable due within six
months after closing, and a $810,000 long-term receivable which bore interest at
5% and was due two years after closing and payable in cash or an equivalent
number of shares at Diomed's option pursuant to a formula. (See Consolidated
Statement of Cash Flows - Non-cash Investing and Financing Activities)

INCOME TAXES

    The realization of the Company's deferred tax assets is primarily dependent
on generating sufficient taxable income prior to expiration of any loss carry
forward balances. During 2001, the Company's development and operations
suggested that the "more likely than not" test for accounting purposes had been
met and accordingly, the valuation allowance that had been recorded in the past
against the net deferred tax asset was reversed and a recovery of taxes of $51.9
million was recognized. The valuation allowance is reviewed periodically and if
the "more likely than not" criterion changes for accounting purposes then the
valuation allowance will be adjusted accordingly.

    As at December 31, 2001, the Company had $42.8 million of research and
development expenditures available as a deduction for tax purposes which have no
expiration date. The Company also has non-capital loss carry forward balances
for Canadian income tax purposes of $42.5 million that are available to offset
future taxable income and will expire at various dates through 2006. The
deferred tax benefit of these research and development expenditures, non-capital
losses and other temporary differences creating deferred tax assets is estimated
to be approximately $41.9 million, and is ultimately subject to final
determination by taxation authorities. (See Note 13 in "Notes to the
Consolidated Financial Statements")

OUTLOOK FOR 2003
----------------

REVENUES

    Total revenues for the Company are expected to range from $122 million to
$135 million in 2003, up 10% to 20% from 2002. The Company expects that its
share of profit from its alliance with Novartis Ophthalmics (excluding the
recovery of manufacturing and other costs) will be approximately 28% to 30% of
Visudyne sales for 2003.

RESEARCH AND DEVELOPMENT

    The Company expects to increase R&D spending by approximately 20% to 27%
over 2002, due mainly to its expenditures associated with its ongoing clinical
trials, including the two ongoing Phase III studies for tariquidar in non-small
cell lung cancer ("NSCLC"), continued clinical studies for Visudyne to expand
labeling and to optimize the treatment outcome in the approved indications, and
additional proof of concept studies to progress QLT0074 in both androgenetic
alopecia and benign prostatic hyperplasia. Other product development, potential
product in-licensing opportunities, and preclinical and clinical testing of the
Company's products under development will also likely contribute to the
projected increase in R&D expenditures.



                                       50

<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    The Company expects to manage SG&A expenses in 2003 to remain flat to
slightly below the 2002 level.

CASH
 
    The Company expects to continue to add to its cash reserves throughout 2003,
bringing these reserves (including short-term investments) to approximately $244
million or more by the end of the year.

PILOT PLANT FACILITY

    During 2003 the Company intends to initiate a project for the construction
of a pilot plant facility on 4,000 square feet of its existing facilities for
the manufacture of clinical drug supply. The Company expects to make a capital
expenditure of approximately $5 million dollars in the facility, during 2003.


EFFECT OF INFLATION
-------------------

    The Company does not believe that inflation has a significant effect on its
business.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

    The Company has financed operations, product development and capital
expenditures primarily through the Company's proceeds from the commercialization
of Visudyne, public and private sales of equity securities, licensing and
collaborative funding arrangements with strategic partners and interest income.

    At December 31, 2002, the Company had $207.9 million of available cash
resources, comprised of cash, cash equivalents and short-term investment
securities, all of which were invested in liquid, investment-grade securities.

    For the year ended December 31, 2002, the Company generated $41.3 million of
cash from operations, compared with $11.5 million generated from operations in
the same period in 2001. The increase in 2002 was the result of the continued
growth of the Company's Visudyne business. The Company's investing activities,
excluding net investment in short-term investment securities, used $(1.8)
million in 2002, compared with $0.8 million provided in the same period of 2001.
Investing activities in 2002 consisted of capital expenditures of $(2.2)
million, offset by proceeds from disposal of investment of $0.5 million.
Investing activities in 2001 consisted of capital expenditures $(3.6) million
and purchases of investments $(7.1) million, offset by proceeds from sale of
investment in Axcan of $11.5 million. The Company's financing activities
provided $3.7 million in 2002 compared to the $(5.8) million used in 2001. Cash
provided by financing activities in 2002 was the result of stock option
exercises. The high level of cash used in financing activities in 2001 was
primarily the result of the repayment of long-term debt. In the aggregate, cash,
cash equivalents and short-term investment securities increased by approximately
$45.2 million during the year ended December 31, 2002.

INTEREST AND FOREIGN EXCHANGE RATES

   The Company is exposed to market risk related to changes in interest and
foreign currency exchange rates, each of which could adversely affect the value
of the Company's current assets and liabilities. At December 31, 2002, the
Company had an investment portfolio consisting primarily of fixed interest rate
Canadian dollar securities with an average remaining maturity of approximately
34 days. If market interest rates were to increase immediately and uniformly by
10% of levels at December 31, 2002, the fair value of the portfolio would
decline by an immaterial amount. The Company believes that its results of
operations and cash flows would not be affected to any significant degree by a
sudden change in market interest rates relative to its investment portfolio,
given the Company's current ability to hold its fixed income investments until
maturity.

   The Company enters into foreign exchange contracts to manage exposures to
currency rate fluctuations related to its expected future net earnings
(primarily in U.S. dollars and EUROs), and cash flows ( in U.S. 



                                       51

<PAGE>

dollars and Swiss francs). At December 31, 2002, the Company has outstanding
forward foreign currency contracts as noted below. The net unrealized loss in
respect of such foreign currency contracts, as at December 31, 2002, was
approximately $0.7 million.


<TABLE>
<CAPTION>
                                                       Maturity Period          Quantity           Average Price
                                                        (to the year)          (millions)        (Canadian dollars)
                                                        -------------          ----------        ------------------
<S>                                                      <C>                 <C>               <C>      
U.S. dollar option-dated forward contracts                  2003               U.S. $15.5         per US$ 1.60297
Swiss franc option-dated forward contracts                  2003                CHF 13.0          per CHF 1.02660

</TABLE>


    At December 31, 2002, the Company had $207.9 million in cash and short-term
investments, primarily Canadian dollar denominated. If the Canadian dollar were
to increase in value by 5% against the U.S. dollar, the Company's U.S. dollar
denominated cash and short-term investments will experience an unrealized
foreign currency translation loss of approximately $0.2 million. The Company
purchases goods and services primarily in Canadian dollars and earns a
significant portion of its revenues in U.S. dollars. Foreign exchange risk is
also managed by satisfying foreign denominated expenditures with cash flows or
assets denominated in the same currency.

LONG-TERM OBLIGATIONS

    In the normal course of business, the Company enters into Visudyne supply
agreements with contract manufacturers, which expire at various dates to 2006
and total $19.9 million. In addition, the Company has entered into operating
lease agreements and clinical development agreements. The minimum annual
commitment related to these agreements payable over the next five years are as
follows:


<TABLE>
<CAPTION>

         Year ending December 31,          $ Million
         ------------------------          ---------
<S>                                        <C>
                2003                          3.3
                2004                          0.7
                2005                          0.7
                2006                         15.5
                2007                           --

</TABLE>


    The Company also has long-term obligations as part of its collaborative
arrangements with various strategic partners for research and development
purposes. The details of these collaborative arrangements are described in the
section "Cost and Expenses - Research and Development".

GENERAL

    The Company believes that its available cash resources and working capital,
and its cash generating capabilities, should be more than sufficient to satisfy
the funding of product development programs, and other operating and capital
requirements for the reasonably foreseeable future. Depending on the overall
structure of current and future strategic alliances, the Company may have
additional capital requirements related to the further development, marketing
and distribution of existing or future products.

    The Company's working capital and capital requirements will depend upon
numerous factors, including: the progress of the Company's preclinical and
clinical testing; fluctuating or increasing manufacturing requirements and R&D
programs; the timing and cost of obtaining regulatory approvals; the levels of
resources that the Company devotes to the development of manufacturing,
marketing and support capabilities; technological advances; the status of
competitors; the cost of filing, prosecuting and enforcing the Company's patent
claims and other intellectual property rights; the ability of the Company to
establish collaborative arrangements with other organizations; and the outcome
of legal proceedings.

    The Company may require additional capital in the future to fund clinical
and product development costs for certain product applications or other
technology opportunities, and strategic acquisitions of products, product
candidates, technologies or other businesses. Accordingly, the Company may seek
funding from a combination of sources, including product licensing, joint
development and new collaborative arrangements, additional equity and debt
financing or from other sources. No assurance can be given that additional
funding will be available or, if available, on terms acceptable to the Company.
If adequate capital is not available, the Company's business can be materially
and adversely affected.



                                       52

<PAGE>


I
TEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources".



                                       53

<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT REPORT

   The consolidated financial statements contained in this annual report have
been prepared by management in accordance with generally accepted accounting
principles in the United States and have been approved by the Board of
Directors. The integrity and objectivity of these consolidated financial
statements are the responsibility of management. In addition, management is
responsible for all other information in the annual report and for ensuring that
this information is consistent, where appropriate, with the information
contained in the consolidated financial statements.

   In support of this responsibility, management maintains a system of internal
controls to provide reasonable assurance as to the reliability of financial
information and the safeguarding of assets. The consolidated financial
statements may include amounts that are based on the best estimates and
judgements of management.

   The Board of Directors is responsible for ensuring that management fulfills
its responsibilities for financial reporting and internal control, and exercises
this responsibility principally through the Audit and Risk Committee. The Audit
and Risk Committee consists of three independent directors not involved in the
daily operations of the Company. The functions of the Audit and Risk Committee
are to review the quarterly and annual consolidated financial statements, review
the adequacy of the system of internal controls, review any relevant accounting,
financial and security regulatory matters, and recommend the appointment of
external auditors. The Audit and Risk Committee meets on a quarterly basis with
management and the external auditors of the Company to satisfy itself that their
responsibilities have been properly discharged.

   The external auditors, Deloitte & Touche LLP, conducted an independent
examination, in accordance with auditing standards generally accepted in the
United States and Canada, for the years ended December 31, 2002, 2001 and 2000,
and expressed their opinion on the consolidated financial statements. Their
examinations included a review of the Company's system of internal controls and
appropriate tests and procedures to provide reasonable assurance that the
consolidated financial statements are, in all material respects, presented
fairly and in accordance with generally accepted accounting principles in the
United States. The external auditors have free and full access to the Audit and
Risk Committee with respect to their findings concerning the fairness of
financial reporting and the adequacy of internal controls.



<TABLE>

<S>                                                <C>    
/S/ PAUL J. HASTINGS                                 /S/ MICHAEL J. DOTY
President and Chief Executive Officer                Senior Vice President and Chief Financial Officer
                                                     (Principal Financial and Accounting Officer)

</TABLE>



                                       54

<PAGE>



INDEPENDENT AUDITORS' REPORT


To the Shareholders of

QLT INC.

    We have audited the accompanying consolidated balance sheets of QLT Inc. as
at December 31, 2002 and 2001 and the consolidated statements of income, cash
flows and changes in shareholders' equity for each of the three years in the
period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as at December 31, 2002 and 2001 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States 
of America.



/S/ DELOITTE & TOUCHE LLP

Chartered Accountants

Vancouver, Canada
February 4, 2003




                                       55

<PAGE>



CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

As at December 31,                                                                     2002         2001
------------------                                                                  ---------    ---------
(In thousands)

<S>                                                                               <C>          <C>      
ASSETS
CURRENT ASSETS
     Cash and cash equivalents                                                      $ 128,138    $  69,663
     Short-term investment securities                                                  79,797       93,111
     Accounts receivable (Note 2)                                                      30,186       25,998
     Inventories (Note 3)                                                              35,892       38,617
     Current portion of deferred income tax assets (Note 13)                           17,092       18,904
     Other                                                                              1,318        2,524
                                                                                    ---------    ---------
                                                                                      292,423      248,817

LONG-TERM INVESTMENTS AND ADVANCES (Note 4)                                             4,170        9,982
PROPERTY AND EQUIPMENT (Note 5)                                                        35,281       36,121
DEFERRED INCOME TAX ASSETS (Note 13)                                                   13,966       23,013
                                                                                    ---------    ---------
                                                                                    $ 345,841    $ 317,933
                                                                                    ---------    ---------
LIABILITIES
CURRENT LIABILITIES
     Accounts payable                                                               $   9,960    $  10,200
     Accrued restructuring charge (Note 11)                                             2,631           --
     Other accrued liabilities (Note 7)                                                 7,027        7,513
     Deferred revenue                                                                  12,678        7,519
                                                                                    ---------    ---------
                                                                                       32,296       25,232
COMMITMENTS (Note 15)
CONTINGENCIES (Note 17)

SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 8)
     Authorized
         500,000,000 common shares without par value
         5,000,000 first preference shares without par value, issuable in series
     Issued and outstanding
         Common shares                                                                391,716      387,990
              December 31, 2002 - 68,407,753 shares
              December 31, 2001 - 67,991,179 shares
ACCUMULATED DEFICIT                                                                   (52,901)     (66,496)
ACCUMULATED OTHER COMPREHENSIVE LOSS                                                  (25,270)     (28,793)
                                                                                    ---------    ---------
                                                                                      313,545      292,701
                                                                                    ---------    ---------
                                                                                    $ 345,841    $ 317,933
                                                                                    =========    =========
</TABLE>




See accompanying notes to the consolidated financial statements.



                                       56

<PAGE>



CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>

Year ended December 31,                                                          2002         2001         2000
-----------------------                                                       ---------    ---------    ---------
(All amounts except share and per share information are
expressed in thousands)
<S>                                                                        <C>          <C>          <C>      
REVENUES
     Revenue from Visudyne(R)(Note 9)                                         $ 104,087    $  79,522    $  24,930
     Contract research and development (Note 10)                                  6,426        3,853        5,128
     Royalties on product sales - Photofrin(R)                                       --           --          663
     Revenue from collaborative arrangements                                         --           --        1,678
                                                                              ---------    ---------    ---------
                                                                                110,513       83,375       32,399
                                                                              ---------    ---------    ---------
COSTS AND EXPENSES
     Cost of sales                                                               19,073       14,925        6,895
     Market and business development costs (Note 9)                                  --           --        3,650
     Research and development                                                    42,252       42,909       32,802
     Selling, general and administrative                                         16,092        7,636       10,204
     Depreciation                                                                 3,121        2,807        2,121
     Restructuring charge (Note 11)                                               2,867           --           --
                                                                              ---------    ---------    ---------
                                                                                 83,405       68,276       55,672
                                                                              ---------    ---------    ---------
OPERATING INCOME (LOSS)                                                          27,108       15,099      (23,273)

INVESTMENT AND OTHER INCOME
     Net foreign exchange (losses) gains                                           (278)       3,814        4,569
     Interest income                                                              4,814        6,815       10,738
     (Writedown) gain on investments (Note 12)                                   (6,204)       3,366       11,307
     Equity loss in NSQ (Note 4)                                                   (277)         (29)          --
     Other                                                                         (169)         233        1,058
                                                                              ---------    ---------    ---------
INCOME BEFORE INCOME TAXES                                                       24,994       29,297        4,399

(Provision for) recovery of  income taxes (Note 13)                             (11,399)      42,215           --
                                                                              ---------    ---------    ---------

NET INCOME                                                                    $  13,595    $  71,512    $   4,399
                                                                              ---------    ---------    ---------
Other comprehensive income                                                        3,523      (17,724)      (4,004)
                                                                              ---------    ---------    ---------
COMPREHENSIVE NET INCOME                                                      $  17,118    $  53,788    $     395
                                                                              =========    =========    =========
NET INCOME PER COMMON SHARE
     Basic                                                                    $    0.20    $    1.05    $    0.07
     Fully diluted                                                            $    0.20    $    1.04    $    0.06
                                                                              ---------    ---------    ---------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (THOUSANDS)
     Basic                                                                       68,228       67,832       66,875
     Fully diluted                                                               68,432       68,548       68,739
                                                                              ---------    ---------    ---------

</TABLE>


See accompanying notes to the consolidated financial statements.



                                       57

<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

Year ended December 31,                                                 2002        2001          2000
-----------------------                                              ---------    ---------    ---------
(In thousands)

<S>                                                                <C>          <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                      $  13,595    $  71,512    $   4,399
     Adjustments to reconcile net income to net cash by
     operating activities
          Depreciation                                                   3,121        2,807        2,121
          Employee stock option expense                                     --            3        1,312
          Write-down (gain) on investment (Note 12)                      6,204       (3,366)     (11,307)
          Unrealized foreign exchange gains                               (566)      (1,065)        (616)
          Deferred income tax assets ( Note 13)                         11,399      (42,215)          --
          Equity loss in NSQ(Note 4)                                       277           29           --
     Changes in non-cash operating assets and liabilities
          Accounts receivable and other assets                          (2,592)     (13,888)      (4,073)
          Inventories                                                    3,234      (11,732)     (17,031)
          Accounts payable                                                (341)        (270)      (4,477)
          Accrued restructuring charge (Note 11)                         2,631           --           --
          Other accrued liabilities                                       (654)       3,581          494
          Deferred revenue                                               5,031        6,102       (2,880)
                                                                     ---------    ---------    ---------
                                                                        41,339       11,497      (32,058)
                                                                     ---------    ---------    ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
     Short-term investment securities                                   15,907      (88,088)     102,099
     Purchase of  investments                                               --       (7,132)          --
     Purchase of property and equipment                                 (2,242)      (3,628)     (18,598)
     Proceeds from dissolution or sale of investments                      488       11,545           --
     Purchase of U.S. marketing and distribution rights                     --           --         (591)
     Sale of Photofrin(R)and related rights                                 --           --          881
                                                                     ---------    ---------    ---------
                                                                        14,153      (87,303)      83,791
                                                                     ---------    ---------    ---------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
     Increase in long-term debt                                             --           --        9,189
     Repayment of long-term debt                                            --       (8,693)          --
     Issuance of common shares                                           3,726        2,928       34,626
                                                                     ---------    ---------    ---------
                                                                         3,726       (5,765)      43,815
                                                                     ---------    ---------    ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
     EQUIVALENTS                                                          (743)      (8,193)      (3,134)
                                                                     ---------    ---------    ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    58,475      (89,764)      92,414
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                            69,663      159,428       67,014
                                                                     ---------    ---------    ---------
CASH AND CASH EQUIVALENTS, END OF YEAR                               $ 128,138    $  69,663    $ 159,428
                                                                     ---------    ---------    ---------
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid:                                                       $     970    $     418    $     503
Income taxes paid:                                                          --           --           --
                                                                     ---------    ---------    ---------
</TABLE>





                                       58

<PAGE>



NON-CASH INVESTING AND FINANCING ACTIVITIES:

1.   On January 14, 2000, the holder of 368,069 Series D preference shares
     having a carrying value of $5.0 million exercised its right to convert them
     into 736,138 common shares of the Company.

2.   On June 8, 2000, the Company sold the worldwide rights to Photofrin in
     exchange for $1.7 million in cash, 1,283,333 common shares of Axcan with a
     value of $7.8 million, preferred shares of Axcan with a value of $8.6
     million, a deferred payment with a value of $2.2 million, and future
     milestone payments of up to $9.5 million. Transaction costs of $0.8 million
     have been recorded as a reduction of cash proceeds (see Note 12 -
     (Writedown) Gain on Investments).

3.   Also on June 8, 2000, the Company re-acquired the marketing and
     distribution rights to Photofrin in the U.S. and the Caribbean in exchange
     for $0.6 million in cash, 641,667 shares of Axcan with a value of $3.9
     million, Axcan preferred shares with a value of $4.3 million and a right to
     receive up to $6.8 million in future milestone payments (see Note 12 -
     (Writedown) Gain on Investments).

4.   On November 8, 2000, the Company finalized the sale of its Optiguide Fiber
     Optics business to Diomed, Inc. ("Diomed"). Under the terms of the sale,
     the Company transferred to Diomed its rights to commercialize Optiguide
     Fiber Optics in exchange for an initial cash payment of $25,000, a $365,000
     short-term receivable due within six months after closing, and a $810,000
     long-term receivable due two years after closing payable in cash or an
     equivalent number of shares at Diomed's option pursuant to a formula (see
     Note 12 - (Writedown) Gain on Investments).

5.   On February 1, 2002, the Company received 135,735 common shares of Diomed
     and on August 5, 2002, received 696,059 preferred shares of Diomed
     Holdings, Inc. as part of the consideration received by the Company from
     the sale of its Optiguide(R) FiberOptics business to Diomed on November 8,
     2000. Under the terms of the sale, Diomed elected to settle the amount
     owing in shares. The Company recorded this investment at a carrying value
     of $0.7 million and recorded a loss of $0.4 million on settlement of
     accounts receivable of $1.2 million.


See accompanying notes to the consolidated financial statements.




                                       59

<PAGE>



CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME



<TABLE>
<CAPTION>
                                                                                           Accumulated Other
                                      Common Shares            Preference Shares         Comprehensive Income
                                -----------------------   ------------------------    ------------------------
                                                                                                     Unrealized 
                                                                                      Cumulative      Gains on   
                                                                                     Translation       Axcan    
                                  Shares        Amount       Shares       Amount      Adjustment    Securities 
                                ----------   ----------   ----------    ----------    ----------    ----------

(All amounts except share and per share information are
expressed in thousands)


<S>                           <C>          <C>             <C>        <C>           <C>           <C>        
Balance at January 1, 2000      64,855,435   $  344,122      368,069    $    5,000    $   (7,065)   $       -- 

Exercise of stock options at
prices ranging from CAD $4.50
to CAD $108.60 per share         2,108,634       34,626           --            --            --            -- 

Issuance of common shares to
Sanofi-Synthelabo Inc. upon
conversion of Series D first
preference shares                  736,138        5,000     (368,069)       (5,000)           --            -- 

Paid-in capital from stock
option modifications                    --        1,312           --            --            --            -- 

Other comprehensive income              --           --           --            --        (6,921)        2,917

Net income                              --           --           --            --            --            -- 
                                ----------   ----------   ----------    ----------    ----------    ----------
Balance at December 31, 2000    67,700,207   $  385,059           --    $       --    $ (13,986)$   $    2,917
                                ----------   ----------   ----------    ----------    ----------    ----------

Exercise of stock options at
prices ranging from CAD $6.75
to CAD $48.88 per share            290,972        2,928           --            --            --            -- 

Paid-in capital from stock
option modifications                    --            3           --            --            --            -- 

Other comprehensive income              --           --           --            --       (14,807)       (2,917)

Net income                              --           --           --            --            --            -- 
                                ----------   ----------   ----------    ----------    ----------    ----------
Balance at December 31, 2001    67,991,179   $  387,990           --    $       --    $ (28,793)$   $       -- 
                                ----------   ----------   ----------    ----------    ----------    ----------

EXERCISE OF STOCK OPTIONS AT
PRICES RANGING FROM CAD $9.28
TO CAD $39.23 PER SHARE            416,574        3,726           --            --            --            --    

OTHER COMPREHENSIVE INCOME              --           --           --            --         3,523            --    

NET INCOME                              --           --           --            --            --            --    
                                ----------   ----------   ----------    ----------    ----------    ----------
BALANCE AT DECEMBER 31, 2002    68,407,753   $  391,716           --    $       --    $  (25,270)   $       --    
                                ----------   ----------   ----------    ----------    ----------    ----------

</TABLE>


(TABLE CONTINUED BELOW) 


<TABLE>
<CAPTION>

                                                          Total      
                                        Accumulated    Shareholders'
                                          Deficit         Equity     
                                        ----------    ----------   
                           
(All amounts except share and per share information are
expressed in thousands)
<S>                                  <C>           <C>          
Balance at January 1, 2000              $ (142,407)   $  199,649   
                                        ----------    ----------   
Exercise of stock options at                            
prices ranging from CAD $4.50                           
to CAD $108.60 per share                        --        34,626   
                                                        
Issuance of common shares to                            
Sanofi-Synthelabo Inc. upon                             
conversion of Series D first                            
preference shares                               --            --   
                                                        
Paid-in capital from stock                              
option modifications                            --         1,312   
                                                        
Other comprehensive income                      --        (4,004)  
                                                        
Net income                                   4,399         4,399   
                                        ----------    ----------   
Balance at December 31, 2000            $ (138,008)   $  235,982   
                                        ----------    ----------   
Exercise of stock options at                            
prices ranging from CAD $6.75                           
to CAD $48.88 per share                        --         2,928   
                                                        
Paid-in capital from stock                              
option modifications                           --             3   
                                                        
Other comprehensive income                     --       (17,724)  
                                                        
Net income                                 71,512        71,512   
                                        ----------    ----------   
Balance at December 31, 2001           $  (66,496)   $  292,701   
EXERCISE OF STOCK OPTIONS AT                            
PRICES RANGING FROM CAD $9.28                           
TO CAD $39.23 PER SHARE                        --         3,726   
                                                        
OTHER COMPREHENSIVE INCOME                     --         3,523   
                                                        
NET INCOME                                 13,595        13,595   
                                        ----------    ----------   
BALANCE AT DECEMBER 31, 2002           $  (52,901)   $  313,545   
                                        ----------    ----------   
                             
</TABLE>



See accompanying notes to the consolidated financial statements.



                                       60

<PAGE>



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.    SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements have been prepared in accordance with
     United States generally accepted accounting principles ("GAAP"). All
     amounts are expressed in U.S. dollars unless otherwise indicated.

     Principles of Consolidation

     These consolidated financial statements include the accounts of the Company
     and its subsidiaries. All significant intercompany transactions have been
     eliminated.

     Long-term investments in which the Company exercises joint control are
     recorded using the equity method whereby the Company includes a pro rata
     share of the investee's earnings in the carrying value of the investment
     and in the Company's net income.

     Use of Estimates

     Preparation of financial statements in conformity with generally accepted
     accounting principles requires management to make estimates and assumptions
     that affect the reported amounts of assets and liabilities, the disclosure
     of contingent assets and liabilities at the date of the financial
     statements, and the reported amounts of revenue and expenses during the
     reporting periods presented. Significant estimates are used for, but not
     limited to, provisions for non-completion of inventory, assessment of the
     net realizable value of long-lived assets, accruals for contract
     manufacturing and research and development agreements, allocation of costs
     to manufacturing under a standard costing system, taxes and contingencies.
     Actual results may differ from estimates made by management.

     Basis of Presentation

     Effective December 31, 2002, the Company changed its primary accounting
     standard from Canadian GAAP to U.S. GAAP in order to provide information on
     a more comparable basis with the majority of the companies in the Company's
     peer group. Consequently, the consolidated financial statements of the
     Company have been prepared in accordance to U.S. GAAP, on a consistent
     basis for all periods presented.

     Reporting Currency and Foreign Currency Translation

     Effective December 31, 2002, the Company changed its reporting currency to
     the U.S. dollar from the Canadian dollar. The consolidated financial
     statements of the Company 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 rate. Revenue and expenses are
     translated at a weighted average rate of exchange for the respective years.
     Translation gains and losses are included as part of the cumulative foreign
     currency translation adjustment which is reported as a component of
     shareholders' equity.

     The financial information for the years ended December 31, 2001 and 2000 is
     presented in U.S. dollars as if the U.S. dollar had been used as the
     reporting currency during those periods.

     The Company adopted the U.S. dollar as its reporting currency in order to
     provide information on a more comparable basis with the majority of the
     companies in the Company's peer group. The Company retained the Canadian
     dollar as its functional currency.

     Segmented Information

     The Company is considered to operate in one industry segment and currently
     generates revenue from a single pharmaceutical product, Visudyne.



                                       61

<PAGE>

     Cash, Cash Equivalents and Short-term Investment Securities

     Cash equivalents include highly liquid investments with insignificant
     interest rate risk and original maturities of three months or less at the
     date of purchase. Investments with maturities between three months and one
     year at the date of purchase are considered to be short-term investment
     securities. Short-term investment securities consist primarily of
     investment-grade commercial paper (R-1 DBRS rating), bankers' acceptances
     and certificates of deposit. All short-term investment securities are
     carried at cost plus accrued interest which, due to the short-term maturity
     of these financial instruments, approximate their fair value.

     Inventories

     Raw materials and supplies inventories are carried at the lower of actual
     cost and market value. Finished goods and work-in-process inventories are
     carried at the lower of weighted average cost and net realizable value. The
     Company records a provision for non-completion of product inventory to
     provide for potential failure of inventory batches in production to pass
     quality inspection.

     Investments

     Short-term investment securities, all of which are categorized as available
     for sale, are carried at cost plus accrued interest which, due to the
     short-term maturity of these financial instruments, approximate their fair
     value.

     Investments in affiliates, where the Company exercises significant
     influence and/or has an ownership interest from 20% to 50%, are accounted
     for using the equity method. Investments in shares of other companies are
     classified as available-for-sale investments. Unrealized gains and losses
     on these investments are recorded in accumulated other comprehensive income
     as a separate component of shareholders' equity, unless the declines in
     market values are judged to be other than temporary in which case the
     losses are recognized in income in the period.

     Long-lived Assets

     In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
     Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting
     for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
     Disposed of, and the accounting and reporting provisions of Accounting
     Principles Board Opinion ("APB") No. 30, Reporting the Results of
     Operations -- Report the Effects of Disposal of a Segment of a Business,
     and Extraordinary, Unusual and Infrequently Occurring Events and
     Transactions. SFAS No. 144 requires that companies (1) recognize an
     impairment loss only if the carrying amount of a long-lived asset is not
     recoverable based on its undiscounted future cash flows and (2) measure an
     impairment loss as the difference between the carrying amount and fair
     value of the asset. In addition, SFAS No. 144 provides guidance on
     accounting and disclosure issues surrounding long-lived assets to be
     disposed of by sale. The adoption of this statement in 2002 did not have a
     material impact on the Company's financial position or results of
     operations. No material impairment relating to property or equipment have
     been identified by the Company for the years ended December 31, 2002, 2001
     and 2000. However, in the fourth quarter of 2002, based on an assessment
     and the recent events affecting Kinetek, the Company wrote off its entire
     investment in Kinetek shares and recorded a writedown of $6.2 million.
     There were no other impairment adjustments to investments recorded in 2002,
     2001 and 2000.

     Property and Equipment

     Property and equipment are recorded at cost and amortized as follows:



<TABLE>
<CAPTION>
                                                                         Methods                     Rates
                                                                    -----------------                -----
<S>                                                              <C>                               <C>
    Buildings                                                       Declining-balance                  4%
    Office furnishings, fixtures and other                          Declining-balance                 20%
    Research and commercial manufacturing equipment and
         computer operating system                                  Declining-balance                 20%
    Computer hardware                                               Declining-balance                 30%

</TABLE>


     Revenue Recognition

     Revenue from Visudyne(R) consists of the Company's 50% share of pre-tax
     profits generated from the Company's collaborative manufacturing, marketing
     and distribution arrangement with Novartis Ophthalmics AG ("Novartis
     Ophthalmics"), revenue from the sale of bulk manufactured Visudyne product
     to Novartis Ophthalmics, and reimbursement from Novartis Ophthalmics of
     third party royalties, and specified other costs. 



                                       62

<PAGE>

     Under the terms of the collaborative arrangement with Novartis Ophthalmics,
     the Company is responsible for manufacturing and product supply and
     Novartis Ophthalmics is responsible for sales, marketing and distribution
     of Visudyne. Pre-tax profits are determined by Novartis Ophthalmics and the
     Company and are derived by taking net sales of Visudyne to third parties,
     less manufacturing, selling, marketing and distribution costs, and third
     party royalties. Revenue from bulk Visudyne sales to Novartis Ophthalmics
     is not recognized until the period of the related product sale and delivery
     by Novartis Ophthalmics to third parties where collection is reasonably
     assured. Proceeds of the QLT-Novartis Ophthalmics Alliance from Visudyne
     sales are received initially in trust by Novartis Ophthalmics for the equal
     benefit of Novartis Ophthalmics and the Company and are held until
     distributed in accordance with the agreement between the Company and
     Novartis Ophthalmics.

     Contract research and development revenues consist of non-refundable
     research and development funding under collaborative agreements with the
     Company's various strategic partners, including (but not limited to)
     Novartis Ophthalmics. Contract research and development funding generally
     compensates the Company for discovery, preclinical and clinical expenses
     related to the collaborative development programs for certain products and
     product candidates of the Company, and is recognized as revenue at the time
     research and development activities are performed under the terms of the
     collaborative agreements. Amounts received under the collaborative
     agreements are non-refundable even if the research and development efforts
     performed by the Company 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.
     (See Note 2 - Accounts Receivable and Note 10 - Contract Research and
     Development)

     Royalties on product sales of Photofrin were recognized as earned under the
     Company's marketing and distribution agreements which were consistent with
     the period of the product sale by the distributors.

     Revenue from collaborative arrangements typically includes initial
     technology access or licensing fees, milestone payments based on the
     achievement of specified events, and contract or collaborative research
     funding. Initial technology access or licensing fees and milestone or other
     contingent payments are recognized ratably over the period that the related
     products or services are delivered or obligations as defined in the
     agreement are performed.

     Cost of Sales

     Cost of sales, consisting of expenses related to the production of bulk
     Visudyne sold to Novartis Ophthalmics and royalties on Visudyne sales, are
     charged against earnings in the period of the related product sale by
     Novartis Ophthalmics to third parties. The Company utilizes 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. Overhead expenses comprise
     direct and indirect support activities related to the manufacture of bulk
     Visudyne and involve costs associated with activities such as quality
     inspection, quality assurance, supply chain management, safety and
     regulatory. Overhead expenses are allocated to inventory during each stage
     of the manufacturing process under a standard costing system, and
     eventually to cost of sales as the related products are sold by Novartis
     Ophthalmics to third parties. The Company records a provision for the
     non-completion of product inventory based on its history of batch
     completion.

     Stock-Based Compensation

     In accordance with the provisions of SFAS No. 123 "Accounting for
     Stock-based Compensation" ("SFAS 123"), the Company applies Accounting
     Principles Board ("APB") Opinion No. 25 and related interpretations in the
     accounting for employee stock option plans. SFAS 123 requires that all
     stock-based awards made to non-employees be measured and recognized using a
     fair value based method. The standard encourages the use of a fair value
     based method for all awards granted to employees, but only requires the use
     of a fair value based method for direct awards of stock, stock appreciation
     rights, and awards that call for settlement in cash or other assets. Awards
     that a company has the ability to settle in stock are recorded as equity,
     whereas awards that the entity is required to or has a practice of settling
     in cash are recorded as liabilities. The Company has adopted the disclosure
     only provision for stock options granted to employees and directors, as
     permitted by SFAS 123.

     The following pro forma financial information presents the net income and
     net income per common share had the Company recognized stock-based
     compensation using a fair value based accounting method:



                                       63

<PAGE>


<TABLE>
<CAPTION>

(In thousands  except per share information)      2002          2001           2000
-------------------------------------------    ----------    ----------    ----------

<S>                                            <C>           <C>           <C>       
Net Income (Loss)
    As reported                                $   13,595    $   71,512    $    4,399
    Add: Employee stock option expense                 --             3         1,312
    Less: Additional employee compensation
      expense under the fair value method         (25,525)      (25,667)      (43,278)
                                               ----------    ----------    ----------
    Pro forma                                     (11,930)       45,848       (37,567)
                                               ----------    ----------    ----------
Basic net income (loss) per common share
    As reported                                $     0.20    $     1.05    $     0.07
    Pro forma                                  $    (0.17)   $     0.68    $    (0.56)
                                               ----------    ----------    ----------
Diluted net income (loss) per share
    As reported                                $     0.20    $     1.04    $     0.06
    Pro forma                                  $    (0.17)   $     0.67    $    (0.56)
                                               ----------    ----------    ----------
</TABLE>


    The pro forma amounts may not be representative of future disclosures since
    the estimated fair value of stock options is amortized to expense over the
    vesting period and additional options may be granted in future years.

    The weighted average fair value of stock options granted in 2002 was CAD
    $11.82 whereas the 2001 and 2000 options were valued at CAD $18.16 and CAD
    $37.63 respectively. The Company used the Black-Scholes option pricing model
    to estimate the value of the options at each grant date, under the following
    weighted average assumptions:



<TABLE>
<CAPTION>
                            2002    2001    2000
                            -----   -----   -----
<S>                       <C>     <C>     <C>  
Annualized Volatility       83.1%   81.1%   57.0%
Risk-free Interest Rate      4.4%    4.8%    6.1%
Expected Life (Years)        2.5     2.5     2.5

</TABLE>


     Research and Development

     Research and development costs consist of direct and indirect expenditures,
     including a reasonable allocation of overhead expenses, associated with the
     Company's 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. Research and development
     costs are expensed as incurred. Patent application, filing and defense
     costs are expensed as incurred and included in general and administrative
     expenses.

     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 differences between the financial statement
     carrying amounts of existing assets and liabilities and their respective
     tax bases, and 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 deferred net tax assets
     resulting in an increase or decrease to net income. Investment tax credits
     are included as part of the provision for (recovery of) income taxes.

     Derivative Financial Instruments

     The Company enters into foreign exchange contracts to manage exposure to
     currency rate fluctuations related to its expected future net earnings and
     cash flows. The Company does not engage in speculative trading of
     derivative financial instruments. The foreign exchange contracts are not
     designated as hedging instruments and as a result all foreign exchange
     contracts are marked to market and the resulting gains and losses are
     recorded in the statement of income in each reporting period. Details of
     foreign exchange contracts outstanding at December 31, 2002, are described
     in Note 14.



                                       64

<PAGE>

     Net Income Per Common Share

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

     The following table sets forth the computation of basic and diluted net
     income per common share:


<TABLE>
<CAPTION>

(In thousands, except per share data)                       2002     2001       2000
-------------------------------------                     -------   -------   -------

<S>                                                      <C>       <C>       <C>    
Numerator:
     Net Income                                           $13,595   $71,512   $ 4,399
Denominator:
     Weighted-average common shares outstanding            68,228    67,832    66,875
     Effect of dilutive securities:
          Stock options                                       203       716     1,864
                                                          -------   -------   -------
     Diluted weighted-average common shares outstanding    68,432    68,548    68,739
                                                          =======   =======   =======
Basic net income per common share                         $  0.20   $  1.05   $  0.07
Diluted net income per common share                       $  0.20   $  1.04   $  0.06

</TABLE>


     Excluded from the calculation of diluted net income per common share for
     the year ended December 31, 2002 were 7,334,365 shares (in 2001 - 4,965,562
     shares, in 2000 - 2,277,972 shares) of common stock from stock options
     because their effect was anti-dilutive.

     Reclassification

     Certain comparative figures have been reclassified to conform with the
     current year's presentation.

     Recently Issued Accounting Standards

     In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
     Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting
     for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
     Disposed of, and the accounting and reporting provisions of Accounting
     Principles Board Opinion ("APB") No. 30, Reporting the Results of
     Operations - Report the Effects of Disposal of a Segment of a Business, and
     Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
     SFAS No. 144 requires that companies (1) recognize an impairment loss only
     if the carrying amount of a long-lived asset is not recoverable based on
     its undiscounted future cash flows and (2) measure an impairment loss as
     the difference between the carrying amount and fair value of the asset. In
     addition, SFAS No. 144 provides guidance on accounting and disclosure
     issues surrounding long-lived assets to be disposed of by sale. The
     adoption of this statement in 2002 did not have a material impact on the
     Company's financial position or results of operations. No material
     impairment relating to property or equipment have been identified by the
     Company for the years ended December 31, 2002, 2001 and 2000. However, in
     the fourth quarter of 2002, based on an assessment and the recent events
     affecting Kinetek, the Company wrote off its entire investment in Kinetek
     shares and recorded a writedown of $6.2 million. There were no other
     impairment adjustments to investments recorded in 2002, 2001 and 2000.

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
     No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
     Corrections. Among other things, SFAS No. 145 rescinds both SFAS No. 4,
     Reporting Gains and Losses from Extinguishment of Debt, and the amendment
     of SFAS No. 4, SFAS No. 64, Extinguishments of Debt Made to Satisfy
     Sinking-Fund Requirements. Through this rescission, SFAS No. 145 eliminates
     the requirement (in both SFAS No. 4 and SFAS No. 64) that gains and losses
     from the extinguishment of debt be aggregated and, if material, classified
     as an extraordinary item, net of the related income tax effect. Generally,
     SFAS No. 145 is effective for transactions occurring after May 15, 2002.
     The Company does not expect SFAS No. 145 to have a material impact on the
     Company's results of operations or its financial position.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
     with Exit or Disposal Activities. This statement provides guidance on the
     recognition and measurement of liabilities associated with exit and
     disposal activities. Under SFAS No. 146, liabilities for costs associated
     with exit or disposal activities should be recognized when the liabilities
     are incurred and measured at fair value. This statement is effective
     prospectively for exit or disposal activities initiated after December 31,
     2002. The Company does not expect the adoption of SFAS No. 146 to have a
     material impact on the Company's consolidated financial position or results
     of operations.

     In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
     Guarantor's Accounting and Disclosure Requirements for Guarantees,
     Including Indirect Guarantees of Indebtedness of Others, an interpretation
     of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation
     No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5,
     Accounting for Contingencies, relating to the guarantor's accounting for,
     and disclosure of, the issuance of certain types of guarantees. FIN 45
     requires that upon issuance of a guarantee, the guarantor must recognize a
     liability for the fair value of the obligation it assumes under that
     guarantee. The initial recognition and measurement provisions are effective
     for guarantees issued or 



                                       65

<PAGE>

     modified after December 31, 2002. The Company does not expect the adoption
     of FIN 45 to have a material impact on its financial position or its
     results of operations.

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
     Compensation--Transition and Disclosure--an amendment of FASB Statement No.
     123. This Statement amends SFAS No. 123, Accounting for Stock-Based
     Compensation, to provide alternative methods of transition for a voluntary
     change to the fair value based method of accounting for stock-based
     employee compensation. In addition, this Statement amends the disclosure
     requirements of SFAS 123 to require prominent disclosures in both annual
     and interim financial statements about the method of accounting for
     stock-based employee compensation and the effect of the method used on
     reported results. The Company's consolidated financial statements currently
     comply with the disclosure requirements of SFAS No. 148.



NOTE  2.   ACCOUNTS RECEIVABLE


<TABLE>
<CAPTION>

(In thousands)                                                               2002     2001
--------------                                                             -------   -------
<S>                                                                      <C>       <C>    
Visudyne(R)                                                                $28,636   $23,044
Contract research and development                                            1,128     1,338
Diomed, Inc. (Note 4)                                                           --     1,215
Trade and other                                                                422       401
                                                                           -------   -------
                                                                           $30,186   $25,998
                                                                           -------   -------
</TABLE>


     Accounts receivable -Visudyne is due from Novartis Ophthalmics and consists
     of the Company's 50% share of pre-tax profit on sales of Visudyne, amounts
     due from sale of bulk Visudyne to Novartis Ophthalmics and reimbursement of
     specified manufacturing, royalty and other costs. The Company does not
     require an allowance for doubtful accounts.


NOTE  3.     INVENTORIES


<TABLE>
<CAPTION>

(In thousands)                                                               2002        2001
--------------                                                             --------    --------
<S>                                                                      <C>       <C>    
Raw materials and supplies                                                 $  1,706    $    497
Work-in-process                                                              22,057      25,882
Finished goods                                                               13,794      14,685
Provision for non-completion of product inventory                            (1,664)     (2,447)
                                                                           --------    --------
                                                                           $ 35,892    $ 38,617
                                                                           --------    --------
</TABLE>


     Inventories include finished goods with a cost of $12.0 million (2001 -
     $7.3 million) that have been shipped to and are held by Novartis
     Ophthalmics. These finished goods will be recognized as costs of
     manufacturing in the period of the related product sale by Novartis
     Ophthalmics to third parties and are included in deferred revenue at cost.

     The Company records a provision for non-completion of product inventory to
     provide for potential failure of inventory batches in production to pass
     quality inspection. Consistent with this policy, during the second quarter
     of 2002, the Company reduced its provision for non-completion of product
     inventory by $1.3 million, as a result of the release of validation batches
     of verteporfin for injection previously on hold for second source supplier
     qualification.



                                       66

<PAGE>




NOTE 4.   LONG-TERM INVESTMENTS AND ADVANCES


<TABLE>
<CAPTION>

(In thousands)                                      2002     2001
--------------                                     ------   ------
<S>                                             <C>       <C>    
 Kinetek Pharmaceuticals, Inc.                     $   --   $6,113
 Axcan Pharma Inc.                                  2,359    2,201
 Diomed Holdings, Inc.                                679       --
 NS & QLT Technologies Ltd.                            --      755
 Other                                              1,132      913
                                                   ------   ------
                                                   $4,170   $9,982
                                                   ------   ------
</TABLE>


     The long-term investment in Kinetek Pharmaceuticals, Inc. ("Kinetek")
     represents the amount invested by the Company for 3.14 million Kinetek
     common shares. During the fourth quarter of 2002, the Company assessed the
     carrying value of its investment and incurred a write-down of $6.2 million
     (see Note 12 - (Writedown) Gain on Investments). The long-term receivable
     from Axcan represents the present value of a $2.5 million receivable
     relating to the sale of Photofrin (see Note 12 - (Writedown) Gain on
     Investments) which does not bear interest and is due in cash or an
     equivalent value of common shares not later than June 8, 2004. The
     long-term investment in Diomed Holdings, Inc. represents the restricted
     Class A Convertible Preferred Stock the Company received as consideration
     for the sale of the Company's Optiguide fiber optic business to Diomed
     Holdings, Inc. Other long-term investments consist principally of long-term
     employee loans which are non-interest bearing with terms ranging from one
     to five years and will be forgiven if certain conditions are met.

     On September 10, 2001, the Company entered into an agreement with Nippon
     Fine Chemicals ("NFC") of Japan to form NS & QLT Technologies Ltd. ("NSQ"),
     a Canadian corporation, to develop and operate a North American Verteporfin
     Presome plant, to be located in Edmonton, Alberta, for the purpose of
     securing a secondary supply chain for Verteporfin Presome. Under the terms
     of the agreement, the common shares of NSQ are owned 50% by the Company and
     50% by NFC, based on equal cash contributions by each party. An initial
     investment of $0.8 million by each party was made in September 2001. During
     the second quarter of 2002, the Company decided not to continue with the
     development of NSQ. In December 2002, the Company and NFC agreed to
     dissolve NSQ. As a result, the remaining assets have been distributed back
     to its shareholders. The Company accounted for this investment using the
     equity method. As a result, the Company recorded an equity loss of $0.3
     million.


NOTE 5.    PROPERTY AND EQUIPMENT


<TABLE>
<CAPTION>
                                                                                    2002            2001
                                                                                  ----------     ----------
                                                                 Accumulated         Net            Net
(In thousands)                                          Cost     Amortization     Book Value     Book Value
--------------                                       -------     ------------     ----------     ----------
<S>                                                <C>            <C>            <C>            <C>    
Buildings                                            $22,641        $ 2,132        $20,509        $20,679
Office furnishings, fixtures, and other                4,043          2,025          2,018          2,454
Research equipment                                     6,283          3,728          2,555          2,728
Commercial manufacturing equipment                     2,028            935          1,093          1,084
Computer hardware and operating system                 9,528          4,405          5,123          5,241
Land                                                   3,983             --          3,983          3,936
                                                     -------        -------        -------        -------
                                                     $48,506        $13,225        $35,281        $36,121
                                                     -------        -------        -------        -------
</TABLE>



NOTE 6.    CREDIT FACILITY



                                       67

<PAGE>

     On August 8, 2001, the Company entered into a CAD $3.5 million unsecured
     credit facility agreement. The first segment of the facility is structured
     as a CAD $1.0 million revolving operating loan which bears interest at the
     bank's prime rate for Canadian dollar drawdowns and the U.S. base rate for
     U.S. dollar drawdowns. As at December 31, 2002, no amount is currently
     drawn against this portion of the facility. A standby letter of credit in
     the amount of CAD $2.5 million has been issued under the second segment of
     the facility. This letter of guarantee is used to secure a land purchase
     and bears interest at 0.7% per annum.


NOTE 7.   OTHER ACCRUED LIABILITIES



<TABLE>
<CAPTION>

(In thousands)                                                        2002          2001
--------------                                                       ------        ------
<S>                                                                <C>           <C>   
Royalties                                                            $2,025        $1,581
Compensation                                                          3,557         2,201
Manufacturing                                                           568           721
Photofrin clinical trials                                                --         1,899
Interest                                                                171           464
Other                                                                   706           647
                                                                     ------        ------
                                                                     $7,027        $7,513
                                                                     ------        ------

</TABLE>



NOTE 8.     SHARE CAPITAL

(a)      Authorized Shares

         On May 5, 2000, at the Annual General Meeting of the Company, the
         shareholders passed a Special Resolution to increase the authorized
         common share capital of the Company from 100,000,000 common shares to
         500,000,000 common shares. There were no other changes to the
         authorized share capital of the Company during the three-year period
         ended December 31, 2002.

(b)      Shareholder Protection Rights Plan

         Effective March 17, 2002, the Company adopted a Shareholder Rights
         Plan, which was then amended and restated effective April 8, 2002 (the
         "Rights Plan"), and approved, as amended, by the shareholders of the
         Company on April 25, 2002. The Rights Plan replaced the shareholder
         rights plan (the "Initial Rights Plan") that was initially adopted by
         the Company on March 17, 1992, confirmed by shareholders on April 28,
         1992, amended March 31, 1997 and re-confirmed, as amended, by
         shareholders on May 12, 1997. The Initial Rights Plan expired on March
         17, 2002. The Rights Plan will remain in effect, unless earlier
         terminated pursuant to its terms, until the 2005 annual meeting of
         shareholders, and, if reconfirmed at the 2005 annual meeting, the
         Rights Plan will remain in effect until the 2008 annual meeting of
         shareholders. Under the Rights Plan, holders of common shares are
         entitled to one share purchase right for each common share held.
         Generally, if any person or group makes a take-over bid, other than a
         bid permitted under the Rights Plan (a "Permitted Bid") or acquires
         beneficial ownership of 20% or more of the Company's outstanding common
         shares without complying with the Rights Plan, the Rights Plan will
         entitle these holders of share purchase rights to purchase, in effect,
         common shares of the Company at 50% of the prevailing market price. A
         take-over bid for the Company can avoid the dilutive effects of the
         share purchase rights, and therefore become a Permitted Bid, if it
         complies with provisions of the Rights Plan or if it is expressly
         approved by the Board of Directors.

(c)      Stock Options

         The Company has in place three incentive stock option plans which are
         described below. At present the Company may only grant options from one
         of these plans, namely the 2000 Incentive Stock Option Plan (the "2000
         Plan"), described below. The other plans remain in place for so long as
         options previously granted under those plans remain outstanding. The
         2000 Plan provides for the grant of options to purchase common shares
         to directors, officers and employees of the Company, or any of its
         subsidiaries, to provide 



                                       68

<PAGE>

         incentive to develop the growth of the Company. The 2000 Plan is
         administered by the Executive Compensation Committee (the "Committee")
         appointed by the Board of Directors. Since 2001, vesting of stock
         options for all employees and directors, which is at the discretion of
         the Committee, has occurred ratably over three years.

         (i)  1995 Incentive Stock Option Plan ("1995 Plan")

              The 1995 Plan, which provided for the issuance of up to 4,000,000
              common shares, was approved by shareholders in May 1995. The
              maximum term of any option granted under the 1995 Plan was five
              years. No option could be granted under the 1995 Plan if it would
              have resulted in the optionee holding options or rights to acquire
              in excess of 5% of the issued and outstanding common shares (on a
              non-diluted basis). The 1995 Plan automatically terminated on
              February 10, 1998, but options granted before this date may be
              exercised until they expire in accordance with their original
              terms. At December 31, 2002, options to purchase an aggregate
              total of 32,328 common shares were outstanding under the 1995 Plan
              and are exercisable in the future at a price of CAD $9.28 per
              common share.

         (ii) 1998 Incentive Stock Option Plan ("1998 Plan")

              The 1998 Plan, which provided for the issuance of up to 5,000,000
              common shares, was approved by shareholders in May 1998. The
              maximum term of any option granted under the 1998 Plan is five
              years. Under this Plan, the exercise price of an option was set by
              the Committee at the time of granting and could not be less than
              the fair market price of the common shares on the date of the
              granting. No option could be granted under the 1998 Plan if it
              would have resulted in the optionee holding options or rights to
              acquire in excess of 5% of the issued and outstanding common
              shares (on a non-diluted basis). The 1998 Plan automatically
              terminated on February 10, 2003 but options granted before the
              termination of the 1998 Plan may be exercised until they expire in
              accordance with their original terms. At December 31, 2002,
              options to purchase an aggregate total of 2,484,435 common shares
              were outstanding under the 1998 Plan and exercisable in the future
              at prices ranging between CAD $9.28 and CAD $51.50 per common
              share.

         (iii) 2000 Incentive Stock Option Plan ("2000 Plan")

              The 2000 Plan, which provides for the issuance of up to
              5,000,000 common shares, was approved by shareholders on May 5,
              2000. On April 25, 2002, at the Annual General Meeting of the
              Company, the shareholders passed a resolution approving an
              amendment to the 2000 Plan by increasing the maximum number of
              common shares issuable under the Plan by 2,000,000 common shares
              from 5,000,000 common shares to 7,000,000 common shares. The 2000
              Plan is to replace the 1995 Plan and the 1998 Plan. A guideline
              currently set in place by the Committee is for the maximum term of
              any option granted under the 2000 Plan not to exceed five years,
              subject to the right of the Committee to extend the term in
              certain circumstances. The exercise price of an option granted is
              set by the Committee at the time of granting and may not be less
              than the fair market price of the common shares on the date of the
              granting. No option may be granted under the 2000 Plan if it would
              result in the optionee holding options or rights to acquire in
              excess of 5% of the issued and outstanding common shares (on a
              non-diluted basis). The Committee may suspend, amend, or terminate
              the 2000 Plan at any time without notice, provided that no
              outstanding option is adversely affected thereby. The 2000 Plan
              will automatically terminate on March 1, 2010, unless it has
              previously been terminated by the Committee, but options granted
              before termination of the 2000 Plan may be exercised until they
              expire in accordance with their original terms. At December 31,
              2002, options to purchase an aggregate total of 5,284,475 common
              shares were outstanding under the 2000 Plan and exercisable in the
              future at prices ranging between CAD $12.93 and CAD $108.60 per
              common share.

        Stock option activity with respect to all of the Company's stock option
        plans is presented below:


                                       69

<PAGE>


<TABLE>
<CAPTION>
                                                                                                Exercise Price
         (In Canadian dollars)                              Number of Shares                    Per Share Range
         ---------------------                              ----------------                    ---------------
<S>                                                          <C>                              <C>  
     Outstanding at December 31, 1999                          4,788,465                      $  4.50 -  60.00
          Granted                                              2,889,989                        43.95 - 108.60
          Exercised                                           (2,108,634)                        4.50 - 108.60
          Cancelled                                              (76,513)                        4.88 - 108.60
                                                            ----------------                  -----------------
     Outstanding at December 31, 2000                          5,493,307                      $  4.56 - 108.60
          Granted                                              3,381,707                        31.40 - 108.60
          Exercised                                            (290,972)                         6.75 -  48.88
          Cancelled                                            (431,646)                         4.56 - 108.60
                                                            ----------------                  -----------------
     Outstanding at December 31, 2001                          8,152,396                      $  9.28 - 108.60
          Granted                                              1,047,862                        12.93 -  39.23
          Exercised                                            (416,574)                         9.28 -  39.23
          Cancelled                                            (982,446)                        13.78 - 108.60
                                                            ----------------                  -----------------
     Outstanding at December 31, 2002                          7,801,238                      $  9.28 - 108.60
                                                            ----------------                  -----------------

</TABLE>


     The weighted average exercise price of outstanding options as at December
     31, 2002 and December 31, 2001 are CAD $50.85 and CAD $53.37, respectively.

     Additional information relating to stock options outstanding as of December
     31, 2002, is presented below:



<TABLE>
<CAPTION>

                            Options Outstanding                                           Options Exercisable
    -------------------------------------------------------------------------    ------------------------------------
    (In Canadian dollars)                                         Weighted
                                                                   Average
                                                   Weighted       Remaining
                              Number of            Average       Contractual                          Weighted Average
    Price Range                Shares          Exercise Price    Life (Years)    Number of Shares      Exercise Price
    -----------                ------         ----------------   ------------    ----------------     ---------------
<S>                       <C>                    <C>               <C>              <C>                  <C>      
    Under $25.00             1,410,961            $ 18.93          3.03                658,320             $14.74 
    $25.00- $37.50           1,773,702              31.33          2.55              1,161,148              31.13 
    $37.51-$50.00            2,668,460              41.60          2.94              1,738,229              42.99 
    Over $50.00              1,948,115             104.40          2.35              1,773,005             104.32 
                            ----------                                              ----------
                             7,801,238                                               5,330,702
                            ----------                                              ----------


</TABLE>


    The number of options issued and outstanding under all plans at any time is
    limited to 15% of the number of issued and outstanding common shares of the
    Company. As of December 31, 2002, the number of options issued and
    outstanding under all plans was 11% of the issued and outstanding common
    shares.



                                       70

<PAGE>
For the nine months



NOTE 9.    REVENUE FROM VISUDYNE(R)

     Under the terms of the Company's development, marketing and distribution
     agreement with Novartis Ophthalmics, the Company is responsible for
     Visudyne manufacturing and product supply and Novartis Ophthalmics is
     responsible for sales, marketing and distribution of Visudyne. The Company
     and Novartis Ophthalmics share equally the profits realized on revenues
     from product sales after deductions for marketing costs and manufacturing
     costs (including third party royalties). Proceeds of the Alliance from
     Visudyne sales are received initially in trust by Novartis Ophthalmics for
     the equal benefit of Novartis Ophthalmics and the Company and are held
     until distributed in accordance with the agreement between the Company and
     Novartis Ophthalmics.

     The Company's revenue from sales of Visudyne was determined as follows:



<TABLE>
<CAPTION>

                                                             For the year          For the year      For the nine months
                                                                 ended                ended                 ended 
(In thousands)                                             December 31, 2002     December 31, 2001    December 31, 2000
--------------                                             -----------------     -----------------    -------------------
<S>                                                          <C>               <C>                   <C>               
       Visudyne(R) sales by Novartis Ophthalmics             $     287,098       $         223,343    $           94,371
       Less: Manufacturing and other costs                         (23,028)                (18,066)               (7,757)
       Less: Sales, marketing and distribution expenses           (107,293)                (87,622)              (54,029)
                                                             -------------       -----------------    ------------------
       Net operating income from Visudyne(R)sales            $     156,777       $         117,656    $           32,585
                                                             =============       =================    ==================

       The Company's 50% share                               $       78,388      $          58,828    $           16,292
       Add: Manufacturing and other reimbursements                   25,699                 20,694                 8,638
                                                              -------------      -----------------    ------------------
       Total revenue from Visudyne(R)                        $      104,087      $          79,522    $           24,930
                                                              =============      =================    ==================

</TABLE>


    For the year ended December 31, 2002, approximately 59% (2001 - 63%, 2000 -
    66%) of total Visudyne sales were in the United States, with Europe and
    other markets responsible for the remaining 41% (2001 - 37%, 2000 - 34%).

    Market and business development costs represented the Company's equal share
    of initial costs associated with planning and initiation of an Expanded
    Access ("EA") Program for Visudyne therapy, net of EA pre-commercial or
    commercial revenues realized, and marketing and pre-launch costs for the
    first quarter of 2000.

    Effective with the second quarter of 2000, the Company commenced recording
    its share of revenues from Visudyne as a revenue item on the statement of
    income.


NOTE  10.    CONTRACT RESEARCH AND DEVELOPMENT

    The Company receives non-refundable research and development funding from
    Novartis Ophthalmics and other strategic partners which is recorded as
    contract research and development revenue. Details of the Company's contract
    research and development revenue are as follows:


                                       71

<PAGE>


<TABLE>
<CAPTION>

(In thousands)                                  2002          2001          2000
--------------                                 ------        ------        ------
<S>                                          <C>           <C>           <C>   
Visudyne(R) ocular programs                    $2,475        $2,503        $5,128
Visudyne(R) dermatology programs                2,745         1,318            --
Tariquidar  programs                            1,000            --            --
Others                                            206            32            --
                                               ------        ------        ------
Contract research & development revenue        $6,426        $3,853        $5,128
                                               ======        ======        ======
</TABLE>



NOTE 11.    RESTRUCTURING CHARGE

    In the fourth quarter of 2002, the Company restructured its operation to
    reduce operating expenses and concentrate its resources on key product
    development programs and business initiatives. The Company reduced its
    overall headcount by 62 people or 17%. The Company provided affected
    employees with severance and support to assist with outplacement. As a
    result, the Company recorded a $2.9 million restructuring charge in the
    fourth quarter of 2002 related to severance and termination costs. The
    Company expects to complete final activities associated with the
    restructuring in 2003. At December 31, 2002, restructuring charges of $0.3
    million were paid out, and the accrued liability relating to the
    restructuring was $2.6 million. During January of 2003, $1.3 million of the
    restructuring charges was paid out, reducing the accrued liability related
    to the restructuring to $1.3 million.


NOTE 12.      (WRITEDOWN) GAIN ON INVESTMENTS


<TABLE>
<CAPTION>

(In thousands)                                                        2002            2001            2000
--------------                                                       -------         -------        -------
<S>                                                                <C>             <C>            <C>    
Writedown of investment in Kinetek Pharmaceuticals, Inc.             $(6,204)        $    --        $    --
Gain on sale of investment in Axcan Pharma Inc.                           --           3,366             --
Gain on sale of Photofrin(R) rights                                       --              --         10,558
Gain on sale of Optiguide(R) Fiber Optics rights                          --              --            749
                                                                     -------         -------        -------
                                                                     $(6,204)        $ 3,366        $11,307
                                                                     -------         -------        -------
</TABLE>


     The Company performs periodic evaluations of its investments to assess for
     indications of impairment. During the fourth quarter, the Company
     contracted an impairment assessment by an independent valuation consultant.
     Based on this assessment and the recent events affecting Kinetek, the
     Company has written off its entire investment in Kinetek shares and
     recorded a writedown of $6.2 million.

     The Company's investments in Axcan were acquired as part of the
     consideration received from the sale of worldwide rights to Photofrin to
     Axcan. The Axcan Series A preferred shares were redeemed on June 8, 2001 by
     Axcan for an equivalent value of common shares plus a common share dividend
     totalling $4.5 million in value. In 2001, all of the Axcan common shares
     were sold for net proceeds of $11.5 million, resulting in a gain on sale of
     $3.4 million.

     On June 8, 2000, the Company finalized the sale of the worldwide rights to
     Photofrin to Axcan. Under the terms of the sale, the Company transferred to
     Axcan the worldwide development, manufacturing and marketing rights to
     Photofrin in exchange for consideration consisting of cash, Axcan perferred
     shares, Axcan common shares, and a deferred payment with a total value of
     $20.2 million. After deducting the cost of re-acquiring from
     Sanofi-Synthelabo Inc the U.S. and Caribbean rights to Photofrin, the
     Company recorded a gain of $10.6 million from the sale of Photofrin rights
     to Axcan.

     On November 8, 2000, the Company finalized the sale of its Optiguide Fiber
     Optics business to Diomed. Under the terms of the sale, the Company
     transferred to Diomed its rights to commercialize Optiguide Fiber Optics in
     exchange for an initial cash payment of $25,000, a $365,000 short-term
     receivable due within six months after closing, and a $810,000 long-term
     receivable which bears interest at 5% and is due two years after closing
     and 


                                       72

<PAGE>

     payable in cash or an equivalent number of shares at Diomed's option
     pursuant to a formula.


NOTE 13.    INCOME TAXES

     The components of the provision for (recovery of) income taxes are as
follows:


<TABLE>
<CAPTION>

(In thousands)                                                     2002           2001              2000
--------------                                                   --------        --------         --------
<S>                                                            <C>             <C>              <C>     
Provision for deferred income taxes                              $ 10,294        $  9,641         $  2,411
Increase in (reduction of) valuation allowance                      1,105         (51,856)          (2,411)
                                                                 --------        --------         --------
Provision for (recovery of) income taxes                         $ 11,399        $(42,215)              --
                                                                 --------        --------         --------

</TABLE>


     Differences between the statutory income tax rates applicable to the
     Company and the Company's effective income tax rate applied to the earnings
     consist of the following:


<TABLE>
<CAPTION>

(In thousands)                                                   2002              2001              2000
--------------                                                 --------          --------          --------
<S>                                                            <C>             <C>              <C>     
Net earnings before income taxes                               $ 24,994          $ 29,297          $  4,399
Canadian  statutory tax rates                                     39.62%            44.62%            45.62%
                                                               --------          --------          --------
Expected income tax provision                                  $  9,902          $ 13,072          $  2,007
      Investment tax credits                                     (1,356)           (4,030)               --
      Increase in (reduction of ) valuation allowance             1,105           (51,856)           (2,411)
      Valuation allowance on Kinetek writedown                    1,229                --                --
Permanent differences and other                                     519               599               404
                                                               --------          --------          --------
Provision for (recovery of) income taxes                       $ 11,399          $(42,215)               --
                                                               --------          --------          --------

</TABLE>


     The tax effects of temporary differences that give rise to significant
     components of the deferred tax assets and deferred tax liabilities are
     presented below:



                                       73

<PAGE>


<TABLE>
<CAPTION>

(In thousands)                                                                     2002             2001
                                                                                 --------         --------
<S>                                                                            <C>              <C>     
Non-capital loss carry forwards                                                  $  5,327         $ 17,368
Research and development expenditures                                              16,241           16,182
Investment tax credits                                                              5,466            3,574
Kinetek writedown                                                                   1,105               --
Development rights                                                                  3,069            3,804
Other temporary differences                                                           955            1,545
                                                                                 --------         --------
Total gross deferred tax assets                                                  $ 32,163         $ 42,473
Less: valuation allowance                                                          (1,105)              --
                                                                                 --------         --------
Total deferred tax assets                                                        $ 31,058         $ 42,473
                                                                                 --------         --------
Total gross deferred tax liabilities                                                   --             (556)
                                                                                 --------         --------
Net deferred tax assets                                                          $ 31,058         $ 41,917
                                                                                 --------         --------
Less: current portion                                                             (17,092)         (18,904)
                                                                                 --------         --------
Net long-term portion of deferred income tax assets                              $ 13,966         $ 23,013
                                                                                 --------         --------
</TABLE>


     As at December 31, 2002, the Company had $44.0 million of unclaimed
     research and development expenditures available for tax purposes which have
     no expiration date. The Company also had non-capital loss carry forward
     balances for Canadian income tax purposes of $14.3 million available to
     offset future taxable income, if any, and expiring at various dates through
     to the year 2006. The future tax benefit of these expenditures and
     non-capital losses is ultimately subject to final determination by taxation
     authorities.

     The realization of the Company's deferred tax assets is primarily dependent
     on generating sufficient taxable income prior to expiration of any loss
     carry forward balances. During 2001, the Company's development and
     operations suggested that the "more likely than not" test for accounting
     purposes had been met and accordingly, the valuation allowance that had
     been recorded in the past against the net deferred tax asset was reversed.
     During the fourth quarter of 2002, the Company set up a valuation allowance
     relating to the writedown of its investment in Kinetek. The valuation
     allowance is reviewed periodically and if the "more likely than not"
     criterion changes for accounting purposes then the valuation allowance will
     be adjusted accordingly.


NOTE 14.   FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

     As at December 31, 2002 and 2001, the carrying amounts for the Company's
     Cash and cash equivalents, Short-term investment securities, Accounts
     receivable, Accounts payable, Accrued restructuring costs, and Other
     accrued liabilities approximated fair value due to the short-term maturity
     of these financial instruments. With respect to Accounts receivable,
     Visudyne revenue and contract research and development receivables comprise
     the aggregate amounts owing from the Company's co-development partner,
     Novartis Ophthalmics, as at December 31, 2002 and December 31, 2001.
     Long-term investments and advances comprise primarily the long-term
     receivable from Axcan relating to the sale of Photofrin and the long-term
     receivable from Diomed (see Note 12 - (Writedown) Gain on Investments). The
     carrying value of these receivables approximates fair value, as they bear
     market interest rates.

     The Company purchases goods and services in both Canadian and U.S. dollars
     and earns most of its revenues in U.S. dollars and EUROs. The Company
     enters into foreign exchange contracts to manage exposure to currency rate
     fluctuations related to its expected future net earnings (primarily in U.S.
     dollars and EUROs) and cash flows (in U.S. dollars and Swiss francs).
     Foreign exchange risk is also managed by satisfying foreign denominated
     expenditures with cash flows or assets denominated in the same currency. At
     December 31, 2002, 



                                       74

<PAGE>

    the Company has outstanding forward foreign currency contracts as noted
    below. The net unrealized loss in respect of such foreign currency
    contracts, as at December 31, 2002, was approximately $0.7 million.



<TABLE>
<CAPTION>
                                                      Maturity Period        Quantity            Average Price
                                                       (to the year)        (millions)        (Canadian dollars)
                                                       -------------        ----------        ------------------
<S>                                                     <C>              <C>                 <C>     
     U.S. dollar option-dated forward contracts            2003             U.S. $15.5          per US $1.60297
     Swiss franc option-dated forward contracts            2003               CHF 13.0          per CHF 1.02660

</TABLE>


NOTE 15.   COMMITMENTS

     In the normal course of business, the Company enters into Visudyne supply
     agreements with contract manufacturers, which expire at various dates to
     2006 and total $19.9 million. In addition, the Company has entered into
     operating lease agreements and clinical development agreements. The minimum
     annual commitment related to these agreements payable over the next five
     years are as follows:


<TABLE>
<CAPTION>

    Year ending December 31,                               $
    ------------------------                             ----
<S>                                                   <C>
           2003                                          3.3
           2004                                          0.7
           2005                                          0.7
           2006                                         15.5
           2007                                          -

</TABLE>




NOTE  16.     SEGMENTED INFORMATION

    Details of the Company's revenues and property and equipment by geographic
    segments are as follows:

    Revenues(1)


<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                               ---------------------------------------------------
          (In thousands)                                             2002              2001              2000
          --------------                                       ---------------    --------------   ---------------
<S>                                                          <C>                <C>              <C>            
           United States                                       $        73,309    $       61,274   $        25,475
           Europe                                                       30,722            19,056             5,751
           Canada                                                        4,544             2,517             2,517
           Other                                                         1,938               528           (1,344)
                                                               ---------------    --------------   ---------------
                                                               $       110,513    $       83,375   $        32,399
                                                               ---------------    --------------   ---------------
</TABLE>


    Property and equipment


<TABLE>
<CAPTION>
                                                                          December 31,
                                                               ---------------------------------
           (In thousands)                                            2002              2001
           --------------                                      ----------------   --------------
<S>                                                          <C>                <C>           
           Canada                                              $         34,608   $       35,380
           United States                                                    673              741
                                                               ----------------   --------------
                                                               $         35,281   $       36,121
                                                               ----------------   --------------

</TABLE>

---------------
(1) Revenues are attributable to a geographic segment based on location of the
    customer for revenue from Visudyne and royalties on product sales, and
    location of the head office of the collaborative partner in the case of
    revenues from contract research and development and collaborative
    arrangements.


                                       75

<PAGE>

NOTE 17. CONTINGENCIES

(a)   On April 24, 2000, Massachusetts Eye and Ear Infirmary ("MEEI") filed a
      civil suit against the Company in the United States District Court for the
      District of Massachusetts seeking to establish exclusive rights for MEEI
      as the owner of certain inventions relating to the use of verteporfin as
      the photoactive agent in the treatment of certain eye diseases including
      Age Related Macular Degeneration ("AMD"). During 2002 the Court granted
      summary judgement in favor of QLT, dismissing all counts of MEEI's
      complaint against the Company in this lawsuit.

      The lawsuit (Civil Action No. 00-10783-JLT) relates, in part, to an
      ongoing dispute involving U.S. Patent No. 5,798,349 (the " '349 Patent")
      which was issued on August 25, 1998 to the Company, MEEI and Massachusetts
      General Hospital ("MGH") as co-owners. The complaint alleged breach of
      contract, misappropriation of trade secrets, conversion,
      misrepresentation, unjust enrichment, unfair trade practices and related
      claims and asked that the Court: (i) declare MEEI the owner of certain
      inventions claimed in the '349 Patent; (ii) enjoin the Company from
      infringement of those claims or any action that would diminish the
      validity or value of such claims; (iii) declare that the Company breached
      an agreement with MEEI to share equitably in any proceeds derived as a
      result of collaboration leading to the '349 Patent; (iv) impose a
      constructive trust upon the Company for any benefit that the Company has
      or will derive as a result of the '349 Patent; and (v) award MEEI monetary
      relief for misappropriation of trade secrets in an amount equal to the
      greater of MEEI's damages or the Company's profits from any such
      misappropriation, and double or treble damages under Massachusetts law.

      The Company's counterclaim, filed in 2000, against MEEI and two employees
      of MEEI, seeks: (i) to correct inventorship on the '349 Patent by adding
      an additional MGH researcher as a joint inventor; (ii) a declaration that
      the Company and MGH are joint owners of the '349 Patent; (iii) a
      determination that MEEI is liable to the Company for conversion and unfair
      trade practices under Massachusetts law; (iv) an injunction to prohibit
      MEEI from prosecuting any patent application claiming subject matter
      already claimed in the '349 Patent; and (v) an award of damages and
      attorneys' fees.

      In 2002, QLT moved for summary judgement against MEEI on all counts of
      MEEI's complaint in Civil Action No. 00-10783-JLT. The Court granted QLT's
      motions, thus dismissing all of MEEI's claims in this lawsuit. MEEI does
      have a right of appeal. The Company does not know whether MEEI will appeal
      the decision. QLT's counterclaims in this lawsuit remain outstanding.

      On May 1, 2001, the United States Patent Office issued United States
      Patent No. 6,225,303 (the "'303 Patent") to MEEI. The `303 Patent is
      derived from the same patent family as the '349 Patent and claims a method
      of treating unwanted choroidal neovasculature in a shortened treatment
      time using verteporfin. The patent application which led to the issuance
      of the `303 patent was filed and prosecuted by attorneys for MEEI and, in
      contrast to the '349 patent, named only MEEI researchers as inventors.

      The same day the `303 patent was issued, MEEI commenced a second civil
      suit against the Company and Novartis Ophthalmics, Inc. alleging
      infringement of the `303 Patent (Civil Action No. 01-10747-EFH). The suit
      seeks damages and injunctive relief for patent infringement and unjust
      enrichment. The Company has answered the complaint, denying its material
      allegations and raising a number of affirmative defenses, and has asserted
      counterclaims against MEEI and the two MEEI researchers who are named as
      inventors on the `303 patent. The Company's counterclaim seeks to correct
      inventorship of the `303 patent by adding QLT and MGH researchers as joint
      inventors and asks the court to declare that QLT and MGH are co-owners of
      the `303 patent. The counterclaim also requests a declaration that QLT
      does not infringe, induce infringement, or contribute to infringement of
      the `303 patent, asserting, among other reasons, that QLT and MGH are
      rightful co-owners of the patent and QLT has a license from MGH of MGH's
      co-ownership rights under the patent. In addition, the counterclaim seeks
      a declaratory judgement that the `303 patent is invalid and unenforceable.
      Finally, the Company's counterclaim seeks an award of monetary damages for
      breach of material transfer agreements governing MEEI's use of
      verteporfin, based upon MEEI's failure to notify QLT of MEEI's intent to
      file the patent application that led to the issuance of the `303 patent to
      MEEI.



                                       76

<PAGE>

      In November 2001, MGH sought and was granted leave to intervene in the
      action to protect its rights in the `303 patent. MGH's complaint in
      intervention, like QLT's counterclaim, asks the court to correct
      inventorship of the `303 patent by adding QLT and MGH researchers as joint
      inventors of the inventions claimed in the patent and by declaring that
      MGH is a joint owner of those inventions.

      No trial has been scheduled in either case, and none is expected until the
      latter part of 2003 at the earliest.

      The Company believes MEEI's claims are without merit and intends to
      vigorously defend against such actions and pursue its counterclaims. The
      outcome of this dispute is not presently determinable or estimatable and
      there can be no assurance that the matter will be resolved in favor of the
      Company. If the dispute is not resolved in the Company's favor, the
      Company may be obliged to pay additional royalties or damages for access
      to the inventions claimed in the patents named in the suits.

  (b) In January and February, 2001, seven proposed securities class actions
      were filed in the United States District Court for the Southern District
      of New York on behalf of purchasers of the Company's common shares between
      August 1, 2000 and December 14, 2000. On May 3, 2001, the court ordered
      consolidation of the seven actions.

      The complaints name as defendants the Company; Julia Levy, former
      President, Chief Executive Officer and a current Director of the Company;
      and Kenneth Galbraith, the Company's former Executive Vice President,
      Chief Financial Officer and Corporate Secretary. The plaintiffs allege
      that the defendants violated Sections 10(b) and 20(a) of the Securities
      Exchange Act of 1934.

      The plaintiffs allege that on December 14, 2000, the Company announced
      that it expected to miss its Visudyne sales estimates for the
      fourth-quarter 2000, and that in response, the Company's common share
      price dropped approximately 31%. The plaintiffs claim that the Company's
      December 14, 2000 statements contradicted prior information issued by the
      defendants concerning the demand for Visudyne and the Company's prospects.
      The plaintiffs allege that the defendants overstated the demand for
      Visudyne, did not properly disclose reimbursement issues relating to
      Visudyne and that the defendants had no basis in the months preceding the
      December announcement for their projections of fourth-quarter sales. The
      plaintiffs further allege that the intent of the individual defendants to
      mislead investors can be inferred from their sale of a substantial amount
      of the Company's common shares during the months of August and September
      2000. The plaintiffs seek injunctive relief, fees and expenses and
      compensatory damages in an unspecified amount.


      The Company believes that the plaintiffs' claims are without merit and
      intends to vigorously defend against such actions. However, the outcome of
      this claim is not presently determinable or estimatable and there can be
      no assurance that the matter will be resolved in favor of the Company and
      the other defendants. If the lawsuit is not resolved in the Company's
      favor, there can be no guarantee that the Company's insurance will be
      sufficient to pay for the damages awarded to the plaintiffs.


The effect of a negative judgement or likely loss with respect to one or both of
the above-mentioned claims, if any, will be recorded in the period it becomes
determinable.




I
TEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

      None.


                                       77

<PAGE>




                                    PART III



ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Information concerning the Company's directors is set forth in the section
entitled "Election of Directors" contained in the proxy statement for use in
connection, with the Company's Annual Meeting of Shareholders to be held on May
22, 2003 which proxy statement will be filed with the Securities and Exchange
Commission within 120 days after December 31, 2002, and is incorporated herein
by reference. Information concerning the Company's executive officers is set
forth in Item 1 of Part I herein under the section entitled "Executive Officers
of the Registrant".


ITEM 11.   EXECUTIVE COMPENSATION

      Information concerning compensation paid to executive officers of the
Company and certain related matters is set forth in the section entitled
"Executive Compensation" contained in the proxy statement for use in connection
with the Company's Annual Meeting of Shareholders to be held on May 22, 2003,
which proxy statement will be filed with the Securities and Exchange Commission
within 120 days after December 31, 2002, and is incorporated herein by
reference.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

EQUITY COMPENSATION PLAN INFORMATION

      The following table sets forth information regarding our common stock that
may be issued upon the exercise of options, warrants and other rights granted to
employees, consultants or directors under all of our existing equity
compensation plans, as of December 31, 2002:


<TABLE>
<CAPTION>                                                                                                  (c)            
                                                                                                --------------------------
                                               (a)                           (b)                Number   of    securities 
                                    ---------------------------    ------------------------     remaining  available  for 
                                    Number  of  Securities  to        Weighted-average          issuance   under   equity 
                                    be  issued  upon  exercise        exercise price of         compensation        plans 
                                    of  outstanding   options,      outstanding options,        (excluding     securities 
PLAN CATEGORY                       warrants and rights              warrants and rights        reflected in column (a))  
-------------                       --------------------------     ------------------------     -------------------------  
<S>                                     <C>                              <C>                         <C>      
Equity compensation plans                 7,801,238(1)                     $50.85                      1,823,364
approved by security holders

Equity  compensation plans not                    0                           N/A                              0
approved by security holders
                                         ----------                       -------                     ----------
Total                                     7,801,238                        $50.85                      1,823,364

</TABLE>


-----------
(1) The Company currently maintains three equity compensation plans, all of
which were approved by shareholders, which provide for the issuance of common
stock to officers and other employees, directors and consultants. These three
equity compensation plans are designated as the 1995 Incentive Stock Option
Plan, the 1998 Incentive Stock Option Plan, and the 2000 Incentive Stock Option
Plan. As of February 28, 2003, no Company securities remain available for
issuance under the 1995 Stock Option Plan or the 1998 Stock Option Plan. The
1995 and 1998 Incentive Stock Option Plans remain in effect for so long as
options previously granted under those Plans remain outstanding

      Other information concerning the security ownership of certain beneficial
owners and management is set forth in the section entitled "Voting Securities
and Principal Holders Thereof" contained in the proxy statement for use in
connection with the Company's Annual Meeting of Shareholders to be held on May
22, 2003, which proxy 



                                       78

<PAGE>

statement will be filed with the Securities and Exchange Commission within 120
days after December 31, 2002, and is incorporated herein by reference.



ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information concerning certain relationships and related transactions is set
forth in the section entitled "Interest of Management and Others in Material
Transactions" contained in the proxy statement for use in connection with the
Company's Annual Meeting of Shareholders to be held on May 22, 2003, which proxy
statement will be filed with the Securities and Exchange Commission within 120
days after December 31, 2002, and is incorporated herein by reference.


ITEM 14.   CONTROLS AND PROCEDURES

    The Company maintains a set of disclosure controls and procedures and
internal controls designed to ensure that information required to be disclosed
in filings made pursuant to the Securities Exchange Act of 1934is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The Company's principal
executive and financial officers have evaluated the Company's disclosure
controls and procedures within 90 days prior to the filing of this Annual Report
on Form 10-K and have determined that such disclosure controls and procedures
are effective.

    There were no significant changes in internal controls or other factors that
could significantly affect internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses subsequent to
the evaluation of the disclosure controls and procedures conducted by the
Company's principal executive and financial officers.




                                       79

<PAGE>



                                     PART IV



ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)   FINANCIAL STATEMENTS

      (i) The following financial statement documents are included as part of

Item 8 to this Form 10-K.

           Auditors' Report
           Consolidated Balance Sheets
           Consolidated Statements of Operations
           Consolidated Statements of Cash Flows
           Consolidated Statements of Shareholders' Equity

           Notes to the Consolidated Financial Statements

      (ii) Schedules required by Article 12 of Regulation S-X:

           All schedules have been omitted because they are not applicable or
           not required, or because the required information is included in the
           consolidated financial statements or notes thereto.

(b)   REPORTS ON FORM 8-K

         (i)   On October 4, 2002, the Company reported, under "Item 5 - Other
               Events", that the U.S. Food and Drug Administration granted
               fast-track review status for tariquidar for the treatment of
               multi-drug resistance in first-line treatment of non-small cell
               lung cancer patients.

        (ii)   On November 22, 2002, the Company reported, under "Item 5 - Other
               Events", a reduction of its workforce by 65 people, or
               approximately 18%, to reduce operating expenses and concentrate
               its resources on key product development programs and business
               initiatives.

       (iii)   On December 17, 2002, the Company reported, under "Item 5 - Other
               Events", statistically significant preliminary results of the
               six-month vision outcomes of patients being treated with altered
               treatment regimens of Visudyne for minimally classic wet
               age-related macular degeneration.

      (viii)   On February 24, 2002, the Company reported, under "Item 5 - Other
               Events", that enrollment of additional patients in its ongoing
               phase III studies of tariquidar in non-small cell lung cancer
               patients was being suspended for approximately three months
               pending the completion of the planned interim safety and efficacy
               analysis by an Independent Data and Safety Monitoring Committee
               (DSMC), upon the recommendation of the DSMC.

(c)   EXHIBITS


<TABLE>
<CAPTION>

  EXHIBIT
  NUMBER             DESCRIPTION
---------    ----------------------------------
<S>        <C>
    3.0      Memorandum and Articles; (1)

    3.1      Article 24 of the Articles of Quadra Logic Technologies Inc. as filed with the
             Registrar of Companies (British Columbia) on July 13, 1989; (4)

    3.2      Article 26 of the Articles of Quadra Logic Technologies Inc. as filed with the Registrar of
             Companies (British Columbia) on November 15, 1989; (4)

    3.3      Part 27 of the Articles of Quadra Logic Technologies Inc. dated February 21, 1991; (10)

    3.4      Part 28 of the Articles of QLT PhotoTherapeutics Inc. dated December 15, 1995; (17)

    4.1      Omitted

    4.5      Omitted

    4.6      Shareholder Rights Plan Agreement, as amended and restated, dated as of March 17, 2002,
             between QLT Inc. and ComputerShare Trust Company of Canada (20)

</TABLE>



                                       80

<PAGE>


<TABLE>
<CAPTION>

  EXHIBIT
  NUMBER             DESCRIPTION
---------    ----------------------------------
<S>        <C>
                  Executive Compensation Plans and Arrangements

10.1         Agreement, dated April 8, 1982, between Dr. Julia Levy, Quadra Logic Technologies Inc. and
             the University of British Columbia; (1)

10.9         Agreement, dated January 15, 1988, between Dr. David Dolphin, Quadra Logic Technologies Inc.
             and the University of British Columbia; (6)

10.14        Form of Employee Stock Option Agreement; (11)

10.15        Royalty Adjustment and Stock Option Agreement dated, August 10, 1989, between Quadra Logic
             Technologies Inc. and Dr. David Dolphin; (2)

10.16        Royalty Agreement, dated December 15, 1987, between Quadra Logic Technologies Inc. and Dr.
             David Dolphin; (2)

10.38        The 1991 Incentive Stock Option Plan; (10)

10.41        1995 QLT Incentive Stock Option Plan; (17)

10.68        1998 QLT Incentive Stock Option Plan; (21)

10.69        Form of Employment Agreement; (23)

10.72        2000 QLT Incentive Stock Option Plan (as amended in 2002); (23) (formerly numbered 10.70)

10.77        Employment Agreement dated December 18, 2001 between QLT Inc. and Paul J. Hastings (filed
             herewith)

10.78        Employment Agreement dated October 9, 2001  between QLT Inc. and Michael J. Doty (filed
             herewith)

10.79        Employment Agreement dated as of June 10, 2002 between QLT Inc. and William J. Newell (filed
             herewith)

10.80        Employment Agreement dated May 19, 2000 between QLT Inc. and Alain Curaudeau (filed herewith)



                            Other Material Contracts

 10.5      Asset Purchase Agreement, dated December 21, 1987, between Quadra Logic Technologies Inc.,
           Photomedica and Ortho Pharmaceutical Corporation; (6)

10.25      Omitted

10.29      License Agreement, dated June 19, 1990, between Quadra Logic Technologies Inc. and the
           Regents of the University of California; (9)

10.30      License Agreement, dated August 14, 1990, between Quadra Logic Technologies Inc. and the Long
           Island Jewish Medical Center; (9)

10.31      License and Royalty Agreement, dated September 14, 1990, between Quadra Logic Technologies
           Inc. and the Beth Israel Hospital Association; (9)

10.41      Agreement, dated May 1, 1992, between Health Research Inc. and Quadra Logic Technologies Inc.
           (11)

10.42      Omitted

10.43      Omitted

10.45      Photodynamic Therapy Product Development, Manufacturing and Distribution Agreement, dated
           July 1, 1994, between Quadra Logic Technologies Inc. and CIBA Vision AG, Hettlingen; (12)

10.46      Omitted

10.47      Omitted

10.48      Omitted

10.49      Omitted

10.50      Omitted

10.51      Bridging Agreement, dated December 1, 1996, between QLT PhotoTherapeutics Inc. (British
           Columbia), QLT PhotoTherapeutics Inc. (Delaware), American Home Products Corporation and
           American Cyanamid Company; (18)

10.52      Omitted

10.53      License and Distributorship Agreement, dated December 1, 1996, between QLT PhotoTherapeutics
           Inc. (British Columbia), QLT PhotoTherapeutics Inc. (Delaware) and American Cyanamid Company;
           (14)(19)

</TABLE>


                                       81

<PAGE>


<TABLE>
<CAPTION>

  EXHIBIT
  NUMBER             DESCRIPTION
---------    ----------------------------------
<S>        <C>
10.54      BPD-MA Verteporfin Supply Agreement, dated March 12, 1999 between QLT PhotoTherapeutics Inc.
           and Parkedale Pharmaceuticals, Inc; (14)(21)

10.55      BPD-MA Presome Supply Agreement, dated February 26, 1998, between QLT PhotoTherapeutics Inc.
           and Nippon Fine Chemical Co., Ltd.; (14)(21)_

10.56      BPD-MA Supply Agreement, dated December 11, 1998, between QLT PhotoTherapeutics Inc. and
           Raylo Chemicals Limited; (14)(21)

10.57      Supply Agreement, dated November 7, 1997, between QLT PhotoTherapeutics Inc. and Roussel
           Canada Inc. and Hoechst Marion Roussel; (14)(21)

10.58      Omitted

10.59      Offer to Purchase, dated January 23, 1998, between QLT PhotoTherapeutics Inc. and Finning
           International Inc., as amended; (21)

10.60      Assignment Agreement between QLT PhotoTherapeutics Inc. and 560677 B.C. Ltd., dated September
           3, 1998; (21)

10.61      Assumption Agreement among Finning International Inc., QLT PhotoTherapeutics Inc., and 560677
           B.C. Ltd., dated September 3, 1998; (21)

10.62      Declaration of Trust between QLT PhotoTherapeutics Inc. and
           560677 B.C. Ltd., dated September 3, 1998; (21)

10.63      License Agreement, dated December 8, 1998, between QLT
           PhotoTherapeutics Inc. and The General Hospital Corporation;
           (14)(21)

10.64      Omitted

10.65      Omitted

10.66      Omitted

10.67      Omitted

10.70      PHOTOFRIN Purchase and Sale Agreement, dated April 28, 2000 between Axcan Pharma Inc., QLT
           PhotoTherapeutics Inc. (British Columbia) and QLT PhotoTherapeutics Inc. (Delaware); (14)(23)

10.71      Omitted

10.73      Research and Early Development Agreement dated as of June 7, 2001 between Kinetek
           Pharmaceuticals, Inc. and QLT Inc.; (14) (25)

10.74      Amending Agreement to PDT Product Development, Manufacturing and Distribution Agreement dated
           as of July 23, 2001 between Novartis Ophthalmics AG and QLT Inc.;  (14) (25)

10.75      Development and Commercialization Agreement dated as of August 13, 2001 between Xenova
           Limited and QLT Inc.;  (14) (22)

10.76      Definitive Development and Commercialization Agreement dated as of August 13, 2001 between
           Xenova Limited and QLT Inc. (filed herewith) (22)


   11.     Statement re: computation of per share earnings; (filed herewith)


   23.     Consent of Deloitte & Touche LLP (filed herewith)


99.1       Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002: Paul J. Hastings, President and Chief Executive Officer


           Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
99.2       Sarbanes-Oxley Act of 2002: Michael J. Doty, Senior Vice President and Chief Financial Officer

</TABLE>


----------
Notes:

                                       82

<PAGE>


(1)  Filed as an exhibit to the Company's Registration Statement on Form F-1
     (File No. 33-31222 filed on September 25, 1989).

(2)  Filed as an exhibit to Amendment No. 1 to the Registration Statement on
     Form F-1 dated November 6, 1989.

(4)  Filed as an exhibit to Amendment No. 3 to the Registration Statement on
     Form  F-1 dated November 22, 1989.

(6)  Filed as an exhibit to the Company's Annual Report on Form 20-F dated July
     31, 1989.

(9)  Filed as an exhibit to the Company's Transition Report on Form 10-K dated
     March 29, 1991.

(10) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     20, 1992.

(11) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     15, 1993.

(14) Certain portions of this exhibit have been omitted and filed separately
     with the Commission pursuant to a grant of confidential treatment under
     Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as
     amended.

(18) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     26, 1997.

(19) Filed as an exhibit to the Company's Quarterly Report Form 10-Q dated
     November 11, 1998.

(21) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     29, 1999.

(22) Certain portions of this exhibit have been omitted and filed separately
     with the Commission pursuant to an application for confidential treatment
     under Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as
     amended.

(23) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     22, 2001

(24) Filed as an exhibit to the Company's Form S-8 filed on September 20, 2002

(25) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q dated
     November 12, 2002



                                       83

<PAGE>


                                  CERTIFICATION

I, Paul J. Hastings, President and Chief Executive Officer of QLT Inc.
("registrant"), certify that:


1.   I have reviewed this annual report on Form 10-K of the registrant;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officer and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: March 27, 2003


/s/ Paul J. Hastings
--------------------
Paul J. Hastings
President and Chief Executive Officer




                                       84

<PAGE>


                                  CERTIFICATION

I, Michael J. Doty, Senior Vice-President and Chief Financial Officer of QLT
Inc. ("registrant"), certify that:

1.   I have reviewed this annual report on Form 10-K of the registrant;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officer and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: March 27, 2003


/s/ Michael J. Doty
-------------------
Michael J. Doty
Senior Vice-President and Chief 
Financial Officer
(Principal Financial and Accounting Officer)



                                       85

<PAGE>


 
                                  SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: March 27, 2003
                                    QLT INC.

                                    By:  /s/ Paul J. Hastings              
                                       -----------------------------------------
                                    Paul J. Hastings, President 
                                    and Chief Executive Officer

                                    By:  /s/ Michael J. Doty                   
                                       -----------------------------------------
                                    Michael J. Doty, Senior Vice President 
                                    and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)



                                       86

<PAGE>




                                POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS:

     That the undersigned officers and directors of QLT Inc. do hereby
constitute and appoint Paul J. Hastings and Michael J. Doty, and each of them,
the lawful attorney and agent or attorneys and agents with power and authority
to do any and all acts and things and to execute all instruments which said
attorneys and agents, or either of them, determine may be necessary or advisable
or required to enable QLT Inc. to comply with the Securities Exchange Act of
1934, as amended, and any rules or regulations or requirements of the Securities
and Exchange Commission in connection with this Form 10-K Annual Report. Without
limiting the generality of the foregoing power and authority, the powers granted
include the power and authority to sign the names of the undersigned officers
and directors in the capacities indicated below to this Form 10-K or amendments
or supplements thereto, and each of the undersigned hereby ratifies and confirms
all that said attorneys and agents or either of them, shall do or cause to be
done by virtue hereof. This Power of Attorney may be signed in several
counterparts.

     IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney on behalf of the Registrant and in the capacities and on the dates
indicated.


<TABLE>
<CAPTION>

            SIGNATURES                                       TITLE                                     DATE
            ----------                                       -----                                     ----
<S>                                <C>                                                          <C> 
       /s/ Paul J. Hastings          President, Chief Executive Officer and Director              March 27, 2003
-----------------------------------  (Principal Executive Officer)
         Paul J. Hastings

        /s/ Michael J. Doty          Senior Vice President and Chief Financial Officer            March 27, 2003
-----------------------------------  (Principal Financial and Accounting Officer)
          Michael J. Doty

         /s/ E. Duff Scott           Chairman of the Board of Directors and Director              March 27, 2003
-----------------------------------
           E. Duff Scott

      /s/ Peter A. Crossgrove        Director                                                     March 27, 2003
-----------------------------------
        Peter A. Crossgrove

          /s/ Jan Dlouhy             Director                                                     March 27, 2003
-----------------------------------
            Jan Dlouhy

      /s/ Ronald D. Henriksen        Director                                                     March 27, 2003
-----------------------------------
        Ronald D. Henriksen

         /s/ Julia G. Levy           Director                                                     March 27, 2003
-----------------------------------
           Julia G. Levy

       /s/ Alan C. Mendelson         Director                                                     March 27, 2003
-----------------------------------
         Alan C. Mendelson

         /s/ Jack L. Wood            Director                                                     March 27, 2003
-----------------------------------
           Jack L. Wood

</TABLE>



                                       87

<PAGE>



                                 EXHIBIT INDEX


<TABLE>
<CAPTION>

  EXHIBIT
  NUMBER             DESCRIPTION
---------    ----------------------------------
<S>        <C>
   3.0       Memorandum and Articles; (1)

   3.1       Article 24 of the Articles of Quadra Logic Technologies Inc. as filed with the
             Registrar of Companies (British Columbia) on July 13, 1989; (4)

   3.2       Article 26 of the Articles of Quadra Logic Technologies Inc. as filed with the Registrar of
             Companies (British Columbia) on November 15, 1989; (4)

   3.3       Part 27 of the Articles of Quadra Logic Technologies Inc. dated February 21, 1991; (10)

   3.4       Part 28 of the Articles of QLT PhotoTherapeutics Inc. dated December 15, 1995; (17)

   4.1       Omitted

   4.5       Omitted

   4.6       Shareholder Rights Plan Agreement, as amended and restated, dated as of March 17, 2002,
             between QLT Inc. and ComputerShare Trust Company of Canada (20)


                  Executive Compensation Plans and Arrangements

  10.1       Agreement, dated April 8, 1982, between Dr. Julia Levy, Quadra Logic Technologies Inc. and
             the University of British Columbia; (1)
  
  10.9       Agreement, dated January 15, 1988, between Dr. David Dolphin, Quadra Logic Technologies Inc.
             and the University of British Columbia; (6)
  
  10.14      Form of Employee Stock Option Agreement; (11)
  
  10.15      Royalty Adjustment and Stock Option Agreement dated, August 10, 1989, between Quadra Logic
             Technologies Inc. and Dr. David Dolphin; (2)
  
  10.16      Royalty Agreement, dated December 15, 1987, between Quadra Logic Technologies Inc. and Dr.
             David Dolphin; (2)
  
  10.38      The 1991 Incentive Stock Option Plan; (10)
  
  10.41      1995 QLT Incentive Stock Option Plan; (17)
  
  10.68      1998 QLT Incentive Stock Option Plan; (21)
  
  10.69      Form of Employment Agreement; (23)
  
  10.72      2000 QLT Incentive Stock Option Plan (as amended in 2002); (23) (formerly numbered 10.70)
  
  10.77      Employment Agreement dated December 18, 2001 between QLT Inc. and Paul J. Hastings (filed
             herewith)
  
  10.78      Employment Agreement dated October 9, 2001  between QLT Inc. and Michael J. Doty (filed
             herewith)
  
  10.79      Employment Agreement dated as of June 10, 2002 between QLT Inc. and William J. Newell (filed
             herewith)
  
  10.80      Employment Agreement dated May 19, 2000 between QLT Inc. and Alain Curaudeau (filed herewith)
  
 
                            Other Material Contracts
 
  10.5     Asset Purchase Agreement, dated December 21, 1987, between Quadra Logic Technologies Inc.,
           Photomedica and Ortho Pharmaceutical Corporation; (6)
 
 10.25     Omitted
 
 10.29     License Agreement, dated June 19, 1990, between Quadra Logic Technologies Inc. and the
           Regents of the University of California; (9)
 
 10.30     License Agreement, dated August 14, 1990, between Quadra Logic Technologies Inc. and the Long
           Island Jewish Medical Center; (9)

 10.31     License and Royalty Agreement, dated September 14, 1990, between Quadra Logic Technologies
           Inc. and the Beth Israel Hospital Association; (9)
 
 10.41     Agreement, dated May 1, 1992, between Health Research Inc. and Quadra Logic Technologies Inc.
           (11)
 
 10.42     Omitted
 
 10.43     Omitted
 
 10.45     Photodynamic Therapy Product Development, Manufacturing and Distribution Agreement, dated
           July 1, 1994, between Quadra Logic Technologies Inc. and CIBA Vision AG, Hettlingen; (12)
 
 10.46     Omitted

 10.47     Omitted
 
 10.48     Omitted
 
 10.49     Omitted
 
 10.50     Omitted
 
 10.51     Bridging Agreement, dated December 1, 1996, between QLT PhotoTherapeutics Inc. (British
           Columbia), QLT PhotoTherapeutics Inc. (Delaware), American Home Products Corporation and
           American Cyanamid Company; (18)
 
 10.52     Omitted
 
 10.53     License and Distributorship Agreement, dated December 1, 1996, between QLT PhotoTherapeutics
           Inc. (British Columbia), QLT PhotoTherapeutics Inc. (Delaware) and American Cyanamid Company;
           (14)(19)

 10.54     BPD-MA Verteporfin Supply Agreement, dated March 12, 1999 between QLT PhotoTherapeutics Inc.
           and Parkedale Pharmaceuticals, Inc; (14)(21)
 
 10.55     BPD-MA Presome Supply Agreement, dated February 26, 1998, between QLT PhotoTherapeutics Inc.
           and Nippon Fine Chemical Co., Ltd.; (14)(21)_
 
 10.56     BPD-MA Supply Agreement, dated December 11, 1998, between QLT PhotoTherapeutics Inc. and
           Raylo Chemicals Limited; (14)(21)
 
 10.57     Supply Agreement, dated November 7, 1997, between QLT PhotoTherapeutics Inc. and Roussel
           Canada Inc. and Hoechst Marion Roussel; (14)(21)
 
 10.58     Omitted
 
 10.59     Offer to Purchase, dated January 23, 1998, between QLT PhotoTherapeutics Inc. and Finning
           International Inc., as amended; (21)
 
 10.60     Assignment Agreement between QLT PhotoTherapeutics Inc. and 560677 B.C. Ltd., dated September
           3, 1998; (21)
 
 10.61     Assumption Agreement among Finning International Inc., QLT PhotoTherapeutics Inc., and 560677
           B.C. Ltd., dated September 3, 1998; (21)
 
 10.62     Declaration of Trust between QLT PhotoTherapeutics Inc. and 560677 B.C. Ltd., dated September 3, 
           1998; (21)
 
 10.63     License Agreement, dated December 8, 1998, between QLT PhotoTherapeutics Inc. and The General 
           Hospital Corporation; (14)(21)

 10.64     Omitted
 
 10.65     Omitted
 
 10.66     Omitted
 
 10.67     Omitted
 
 10.70     PHOTOFRIN Purchase and Sale Agreement, dated April 28, 2000 between Axcan Pharma Inc., QLT
           PhotoTherapeutics Inc. (British Columbia) and QLT PhotoTherapeutics Inc. (Delaware); (14)(23)
 
 10.71     Omitted
 
 10.73     Research and Early Development Agreement dated as of June 7, 2001 between Kinetek
           Pharmaceuticals, Inc. and QLT Inc.; (14) (25)
 
 10.74     Amending Agreement to PDT Product Development, Manufacturing and Distribution Agreement dated
           as of July 23, 2001 between Novartis Ophthalmics AG and QLT Inc.;  (14) (25)
 
 10.75     Development and Commercialization Agreement dated as of August 13, 2001 between Xenova
           Limited and QLT Inc.;  (14) (22)
 
 10.76     Definitive Development and Commercialization Agreement dated as of August 13, 2001 between
           Xenova Limited and QLT Inc. (filed herewith) (22)


 11.       Statement re: computation of per share earnings; (filed herewith)


 23.       Consent of Deloitte & Touche LLP (filed herewith)


 99.1      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002: Paul J. Hastings, President and Chief Executive Officer
 
 99.2      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002: Michael J. Doty, Senior Vice President and Chief Financial Officer

----------
Notes:

(1)  Filed as an exhibit to the Company's Registration Statement on Form F-1
     (File No. 33-31222 filed on September 25, 1989).

(2)  Filed as an exhibit to Amendment No. 1 to the Registration Statement on
     Form F-1 dated November 6, 1989.

(4)  Filed as an exhibit to Amendment No. 3 to the Registration Statement on
     Form  F-1 dated November 22, 1989.

(6)  Filed as an exhibit to the Company's Annual Report on Form 20-F dated July
     31, 1989.

(9)  Filed as an exhibit to the Company's Transition Report on Form 10-K dated
     March 29, 1991.

(10) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     20, 1992.

(11) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     15, 1993.

(14) Certain portions of this exhibit have been omitted and filed separately
     with the Commission pursuant to a grant of confidential treatment under
     Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as
     amended.

(18) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     26, 1997.

(19) Filed as an exhibit to the Company's Quarterly Report Form 10-Q dated
     November 11, 1998.

(21) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     29, 1999.

(22) Certain portions of this exhibit have been omitted and filed separately
     with the Commission pursuant to an application for confidential treatment
     under Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as
     amended.

(23) Filed as an exhibit to the Company's Annual Report on Form 10-K dated March
     22, 2001

(24) Filed as an exhibit to the Company's Form S-8 filed on September 20, 2002

(25) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q dated
     November 12, 2002

</Table>






<PAGE>


                                                                   EXHIBIT 10.76




                                 --------------



                                    QLT INC.

                                       AND

                                 XENOVA LIMITED



                                  -------------

                        DEVELOPMENT AND COMMERCIALIZATION

                                    AGREEMENT








<PAGE>




                   DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

                                TABLE OF CONTENTS



<TABLE>

<S>                                                                                                             <C>
ARTICLE 1 - INTERPRETATION........................................................................................1
         1.1      Definitions.....................................................................................1
         1.2      Other Definitions..............................................................................10

ARTICLE 2 - PRODUCT DEVELOPMENT..................................................................................10
         2.1      Program Commencement...........................................................................10
         2.2      Development Committee..........................................................................10

ARTICLE 3 - CMC, MANUFACTURING AND SUPPLY........................................................................12
         3.1      Overview.......................................................................................12
         3.2      Development Supply.............................................................................12
         3.3      Commercial Supply in the Territory.............................................................12
         3.4      Xenova Retains All Other Manufacturing Rights..................................................13
         3.5      Transfer of Technology.........................................................................13
         3.6      Manufacturing Quality..........................................................................13
         3.7      Manufacturing Co-Operation.....................................................................14
         3.8      Equivalency of Finished Product................................................................16
         3.9      Reciprocal Right of Inspection.................................................................16
         3.10     Implementation of Recalls......................................................................16
         3.11     Mutual Liability for Recall....................................................................17
         3.12     Manufacture and Supply Agreement Requirements..................................................17

ARTICLE 4 - CLINICAL AND REGULATORY DEVELOPMENT..................................................................17
         4.1      Grant of Rights................................................................................17
         4.2      Initial Development in the Development Territory...............................................17
         4.3      QLT's Contributions............................................................................18
         4.4      Prior Program Commitments......................................................................18
         4.5      Development Progress Reports...................................................................18
         4.6      Regulatory Responsibility in the Territory.....................................................19
         4.7      Regulatory Responsibility in Europe............................................................19
         4.7A     Xenova and QLT Review of Regulatory Filings....................................................20
         4.8      Adverse Event Reporting........................................................................21
         4.9      Personnel......................................................................................21

         4.10     Xenova Contribution............................................................................21

ARTICLE 5 - COMMERCIALIZATION AND MARKETING......................................................................22
         5.1      Grant of Rights................................................................................22
         5.2      Commercialization Diligence....................................................................22
         5.3      Marketing Diligence............................................................................22
         5.4      Arbitration Rights Alternative not Cumulative..................................................24
         5.5      Commercialization by Xenova....................................................................24

ARTICLE 6 - ACTIVITIES, NON-COMPETITION, GLOBAL FRANCHISE AND FURTHER OPPORTUNITIES..............................24
         6.1      Xenova Activities..............................................................................24
         6.2      Xenova Activities in the ODD Field in the Territory............................................24
         6.3      No Other Xenova Activities during the First Year...............................................25
         6.4      Reciprocal Non-Compete.........................................................................25
         6.5      Global Franchise...............................................................................25
         6.6      Notice and Discussion of Other Opportunities...................................................25
         6.7      Cross-Over Use and Cross-Pricing Protection....................................................25

</TABLE>



<PAGE>

                                      -ii-

<TABLE>
<S>                                                                                                            <C>
         6.8      Consequences of Arbitration....................................................................26

ARTICLE 7 - CONFIDENTIALITY AND USE OF INFORMATION...............................................................26
         7.1      Ownership of Confidential Information..........................................................26
         7.2      Obligation of Confidentiality..................................................................26
         7.3      Xenova Use of QLT Program Information..........................................................27
         7.4      QLT Use of Xenova Program Information..........................................................27
         7.5      Third Party Access.............................................................................27
         7.6      No Use of QLT Program Information for ODD......................................................28
         7.7      Publications...................................................................................28
         7.8      Acknowledgement of Prior Disclosures...........................................................29
         7.9      Return of Confidential Information.............................................................29

ARTICLE 8 - INTELLECTUAL PROPERTY; ADDITIONAL TECHNOLOGY; LICENSES...............................................29
         8.1      Ownership of Intellectual Property.............................................................29
         8.2      Ownership of Program Information...............................................................30
         8.3      Additional Technology..........................................................................30
         8.4      License to QLT.................................................................................31
         8.5      License to Xenova..............................................................................33
         8.6      Grants of Xenova Intellectual Property.........................................................34

ARTICLE 9 - MILESTONE PAYMENTS...................................................................................34
         9.1      Upfront Payment................................................................................34
         9.2      Milestone Payments.............................................................................34
         9.3      Currency of Payment............................................................................35

ARTICLE 10 - ROYALTIES...........................................................................................35
         10.1     Royalties......................................................................................35
         10.2     Exclusions from Royalties......................................................................35
         10.3     Third Party License Fees and Royalties.........................................................36
         10.4     Adjustment of Royalties........................................................................36
         10.5     Royalty Payments Upon Termination..............................................................36
         10.6     Compensation for Use of Program Information....................................................36

ARTICLE 11 - PAYMENT TERMS.......................................................................................37
         11.1     Payment of Royalties...........................................................................37
         11.2     Currency for Royalty Payments..................................................................37
         11.3     Currency Transfer Restrictions.................................................................37
         11.4     Taxes..........................................................................................37
         11.5     Sales and Payment Reports......................................................................38
         11.6     Net Proceeds Reports...........................................................................38
         11.7     Accounts and Audit.............................................................................38
         11.8     Confidentiality of Reports.....................................................................39

ARTICLE 12 - REPRESENTATIONS, WARRANTIES AND COVENANTS...........................................................39
         12.1     Xenova's Representations, Warranties and Covenants.............................................39
         12.2     QLT's Representations, Warranties and Covenants................................................40

ARTICLE 13 - PATENT PROSECUTION, MAINTENANCE AND ENFORCEMENT.....................................................41
         13.1     Xenova Patents - Prosecution and Maintenance...................................................41
         13.2     QLT Patents - Prosecution and Maintenance......................................................42
         13.3     Patentable Improvements........................................................................42
         13.4     Xenova Patents - Infringement..................................................................42
         13.5     QLT Patents - Infringement.....................................................................43
         13.6     Third Party Claims of Infringement.............................................................43
         13.7     Infringement of Third Party Patents............................................................44

</TABLE>



<PAGE>

                                     -iii-

<TABLE>

<S>                                                                                                            <C>
ARTICLE 14 - TRADEMARKS..........................................................................................44
         14.1     Product Trademarks.............................................................................44
         14.2     Use of Trademarks..............................................................................45

ARTICLE 15 - INDEMNITY AND LIMITATIONS OF LIABILITY..............................................................45
         15.1     Mutual Indemnification.........................................................................45
         15.2     Product Liability Indemnity....................................................................45
         15.3     Indemnification Procedure......................................................................46
         15.4     No Consequential Damages.......................................................................46

ARTICLE 16 - TERM AND TERMINATION................................................................................46
         16.1     Termination....................................................................................46
         16.2     Expiration.....................................................................................47
         16.3     Early Termination by QLT.......................................................................47
         16.4     Early Termination by Xenova....................................................................48
         16.5     Termination on Bankruptcy......................................................................48
         16.6     Effect of Termination..........................................................................48
         16.7     Xenova License in the Case of Certain Early Terminations.......................................49
         16.8     QLT License in the Case of Certain Early Terminations..........................................50
         16.9     Survival.......................................................................................50

ARTICLE 17 - MISCELLANEOUS PROVISIONS............................................................................51
         17.1     Governing Law..................................................................................51
         17.2     Expedited Arbitration..........................................................................51
         17.3     Traditional Arbitration........................................................................52
         17.4     Amendment......................................................................................52
         17.5     Assignment.....................................................................................52
         17.6     Compliance with Laws...........................................................................53
         17.7     Entire Agreement...............................................................................53
         17.8     Exhibits.......................................................................................53
         17.9     Force Majeure..................................................................................53
         17.10    Further Assurances.............................................................................53
         17.11    Headings.......................................................................................53
         17.12    Injunction.....................................................................................53
         17.13    Inurement......................................................................................54
         17.14    Notice.........................................................................................54
         17.15    Press Releases/Publicity.......................................................................54
         17.16    Relationship of Parties........................................................................55
         17.17    Rights and Remedies............................................................................55
         17.18    Severability...................................................................................55
         17.19    Waiver.........................................................................................55
         17.20    Wording........................................................................................56
         17.21    Third Party Rights.............................................................................56

</TABLE>



EXHIBIT 1.1(p)   DESCRIPTION OF XR9576

EXHIBIT 1.1(q)   DRUG SPECIFICATION

EXHIBIT 1.1(CCC) SUMMARY OF PROGRAM ACTIVITIES

EXHIBIT 1.1(HHH) REGISTRATION PACKAGE

EXHIBIT 1.1(WWW) LIST OF XENOVA PATENTS

EXHIBIT 12.1(c)  ISSUES RELATING TO XENOVA PATENTS







<PAGE>


                   DEVELOPMENT AND COMMERCIALIZATION AGREEMENT


THIS DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (this "AGREEMENT") is entered
into with effect from the 13th day of August, 2001 (the "EFFECTIVE DATE")

BETWEEN:

                  QLT INC., a company incorporated under the laws of the
                  Province of British Columbia, Canada and having an office at
                  887 Great Northern Way, Vancouver, British Columbia, Canada
                  V5T 4T5

                  (hereinafter referred to as "QLT")

                                                               OF THE FIRST PART

AND:

                  XENOVA LIMITED incorporated under the laws of England and
                  Wales, United Kingdom and having an office at 957 Buckingham
                  Avenue, Slough, Berkshire, England, United Kingdom SL1 4NL

                  (hereinafter referred to as "XENOVA")

                                                              OF THE SECOND PART

Recitals

A. QLT and Xenova have executed a Confidentiality Agreement dated April 20, 2001
(the "CONFIDENTIALITY AGREEMENT");

B. QLT and Xenova have executed an interim Development and Commercialization
Agreement dated August 13, 2001 setting out their respective obligations for the
development, manufacturing and commercialization of a product incorporating
Xenova's XR9576 compound (the "INTERIM AGREEMENT");

C. The Interim Agreement provides for the negotiation, settlement and execution
of a more comprehensive "Definitive Agreement" consistent with the terms set out
in the Interim Agreement and setting out such additional terms, conditions and
other provisions or amendments, as may be settled by the parties and relating
(among other matters) to the parties' respective obligations for the continued
development, manufacturing and commercialization of a product or products
incorporating Xenova's XR9576 compound; and

D. This Agreement will be the "Definitive Agreement" referred to in the Interim
Agreement, which the parties have negotiated and now desire to settle and
execute on the terms and conditions set out herein.

NOW THEREFORE, in consideration of the mutual covenants and agreements set out
in this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

                   ARTICLE 1 - INTERPRETATION 

1.1 DEFINITIONS

For the purposes of this Agreement, the following terms will have the respective
meanings set forth below:

(a)      "ACT" shall mean the United States Food, Drug and Cosmetic Act, as
         amended from time to time, and regulations promulgated thereunder.

(b)      "ACTIVE PHARMACEUTICAL INGREDIENT" shall mean a substance or compound
         that is incorporated in a pharmaceutical product as a therapeutically
         active compound (ingredient).



<PAGE>
                                     - 2 -



(c)      "ADDITIONAL TECHNOLOGY" shall have the meaning set out in Section
         8.3(a).

(d)      "AFFILIATE" shall mean any corporation or other entity that directly,
         or indirectly through one or more intermediaries, controls, is
         controlled by or is under common control with the designated party, but
         only so long as such relationship exists. For purposes of this
         definition, "control" means ownership of at least 50% of the shares of
         stock entitled to vote for directors in the case of a corporation and
         at least 50% of the interests in profits in the case of a business
         entity other than a corporation.

(e)      "ASSERTING PARTY" shall have the meaning set out in Section 17.2(a).

(f)      "AVAILABLE XENOVA INDEPENDENT PROGRAM INFORMATION" shall mean Xenova
         Independent Program Information that would reasonably be expected to
         enable QLT to increase the Net Sales obtained from commercialization of
         the Drug or Product inside the Field inside the Territory except,
         subject to Section 7.5, Xenova Independent Program Information that
         Xenova is restricted from making available to QLT by the terms of any
         agreement with a Third Party.

(g)      "BUSINESS DAY" shall mean any day other than a day which is a Saturday,
         Sunday or a statutory holiday in the Province of British Columbia,
         Canada or in England, United Kingdom.

(h)      "COMMERCIAL LAUNCH" shall mean the first sale of the Finished Product
         in the Field in a country or regulatory jurisdiction in the Territory
         by or on behalf of QLT or an Affiliate or sub-licensee of QLT after
         obtaining all required Regulatory Approvals in such country or
         regulatory jurisdiction.

(i)      "CONFIDENTIAL INFORMATION" shall mean:

         (i)      in the case of Xenova, all Information disclosed by Xenova to
                  QLT concerning the Drug and/or Product, or the use or
                  manufacture thereof, that is:

                  (A)      owned by or licensed to Xenova prior to the Effective
                           Date, or

                  (B)      developed by Xenova after the Effective Date outside
                           the Program and without reference to or use of any
                           Program Information or QLT Confidential Information;
                           and

         (ii)     in the case of QLT, all Information disclosed by QLT to Xenova
                  concerning the Drug and/or Product, or the use or manufacture
                  thereof, or otherwise useful to the Program, that is:

                  (A)      owned by or licensed to QLT prior to the Effective
                           Date, or

                  (B)      developed by QLT after the Effective Date outside the
                           Program and without reference to or use of any
                           Program Information or Xenova Confidential
                           Information;

         provided that "Confidential Information" will not include any
         Information that:

         (iii)    is Program Information;

         (iv)     is in the public domain at the time of disclosure or
                  subsequently enters the public domain without fault on the
                  part of the receiving party;

         (v)      is known by the receiving party from its own sources, as
                  evidenced by the receiving party's written records made prior
                  to the disclosure by the disclosing party ; or

         (vi)     after disclosure, can be demonstrated by the receiving party
                  by written record to have been subsequently provided to the
                  receiving party by a Third Party if and for as long as the
                  receiving party has no reason to believe the Third Party is
                  under any obligation to keep such information confidential.

         A combination of features will not be deemed within the foregoing
         exceptions merely because individual features are in the public domain
         or in the possession of the receiving party unless the combination
         itself is in the public domain or in the possession of the receiving
         party.

(j)      "CONFIDENTIALITY AGREEMENT" shall have the meaning ascribed thereto in
         Recital A.



<PAGE>
                                     - 3 -


(k)      "CROSS-OVER USE" shall mean the use or sale in the Territory of a
         compound, in whatever form, by Xenova (or by an Affiliate, licensee or
         sub-licensee of Xenova or by a Third Party contracting with Xenova or
         an Affiliate of Xenova) that can reasonably be seen as competing
         directly and in a commercially significant way with the use or sale of
         the Product within the Field in the Territory.

(l)      "CROSS-PRICING RISK" shall mean the use or sale in the Territory of a
         compound that incorporates the Drug, in whatever form, that is owned,
         controlled or licensed by Xenova or by an Affiliate of Xenova, that has
         the same or substantially the same chemical structure, or similar
         performance characteristics, to the Product so that the compound could
         reasonably be considered to be substituted in medical practice and
         subject to commercially significant competitive pricing in relation to
         the Product.

(m)      "CTX" shall mean a Notice under the Medicines (Exemption from Licences)
         (Clinical Trials) Order 1995 (S.I. 1995/2808) pursuant to the rules and
         policies of the Medicines Control Agency.

(n)      "DEVELOPMENT COMMITTEE" shall mean the committee constituted by the
         parties in accordance with Section 2.2.

(o)      "DEVELOPMENT TERRITORY" shall mean the Territory and Europe, subject to
         amendment in accordance with Section 4.2(b) following completion of the
         Initial Development.

(p)      "DRUG" will mean Xenova's proprietary active pharmaceutical compound
         currently known as XR9576 (having the chemical structure attached
         hereto as EXHIBIT 1.1(p)) in its pure form (free base form and any
         pharmaceutically acceptable salt form) and any formulations thereof or
         improvements thereto.

(q)      "DRUG SPECIFICATION" shall mean the specifications for the Drug and/or
         Product attached hereto as EXHIBIT 1.1(q), as may be revised from time
         to time by QLT as part of the regulatory process with the approval of
         applicable regulatory authorities.

(r)      "EMEA" shall mean the European Medicines Evaluation Agency or any
         successor agency thereof.

(s)      "EUROPE" will mean the United Kingdom, Ireland, Germany, France, Italy,
         Belgium, The Netherlands, Luxembourg, Liechtenstein, Monaco,
         Switzerland, Austria, Spain, Portugal, Greece, Cyprus, Malta, Norway,
         Sweden, Denmark, Finland, Greenland, Iceland, Andorra, Vatican City,
         San Marino and any other countries that join the European Union during
         the Term, and any successor states or countries thereto.

(t)      "EXISTING XENOVA PROGRAM INFORMATION" shall mean any Information
         generated, developed or owned by, or licensed to, Xenova as of the
         Effective Date that (i) relates to the Drug and/or Product or (ii) is
         necessary or useful to the Program.

(u)      "FDA" shall mean the United States Food and Drug Administration or any
         successor agency thereof.

(v)      "FIELD" will mean any human therapeutic, diagnostic or prophylactic use
         of the Drug in oncology, including oral uses thereof, but excluding the
         ODD Field; provided that if, within [*]after the Effective Date, Xenova
         does not complete a bona fide agreement with a Third Party that grants
         rights to that Third Party to develop and commercialize the Drug in the
         ODD Field in the Territory, then the Field shall include the ODD Field.

(w)      "FINISHED PRODUCT" shall mean the Product, whether alone or in
         combination with one or more other Active Pharmaceutical Ingredient(s),
         that has undergone all stages of production, including packaging in its
         final container and labeling, in accordance with GMPs, for commercial
         distribution to Third Parties.

(x)      "FIRST LINE INDICATION" shall mean Regulatory Approval by the FDA in
         the United States of America for the use of Product as a single agent
         or in combination with a chemotherapeutic agent for the treatment of
         patients who have not received prior cancer chemotherapy.

(y)      "GAAP" shall mean, in the case of accounting to be undertaken by QLT,
         those accounting principles that are recognized as being generally
         accepted in Canada from time to time as set 


<PAGE>
                                     - 4 -


         forth by the Accounting Standards Board of the Canadian Institute of
         Chartered Accountants and, in the case of accounting to be undertaken
         by Xenova, those accounting principles that are recognized as being
         Generally Accepted Accounting Principles in the United Kingdom from
         time to time.

(z)      "GMPS" shall mean the current Good Manufacturing Practices as defined
         from time to time by the Act and the applicable FDA regulations,
         policies or guidelines in effect for the manufacture, handling,
         testing, storage and control of pharmaceutical materials as applied to
         "finished products" in the United States of America and the
         corresponding requirements of each applicable jurisdiction in the
         Territory for which QLT informs Xenova from time to time that the
         Product is to be marketed and sold in such jurisdiction.

(aa)     "GLPS" shall mean the current Good Laboratory Practices as defined by
         the Act and the applicable FDA regulations, policies or guidelines in
         effect for the manufacture, handling, testing, storage and control of
         pharmaceutical materials in the United States of America and the
         corresponding requirements of each applicable jurisdiction in the
         Territory for which QLT informs Xenova from time to time that the
         Product is to be marketed and sold in such jurisdiction.

(bb)     "ICH" shall mean the International Conference on Harmonization of
         Technical Requirements for Registration of Pharmaceuticals for Human
         Use.

(cc)     "ICH GUIDELINES" shall mean the guidelines established by the ICH in
         effect from time to time.

(dd)     "IMPROVEMENTS" shall mean, in relation to any Intellectual Property,
         any and all improvements, enhancements, modifications, revisions,
         adaptations and derivative works (whether complete or incomplete), of,
         to, in or based upon such Intellectual Property.

(ee)     "IND" shall mean an Investigational New Drug Application under 21
         C.F.R. Part 312 pursuant to the rules and policies of the FDA.

(ff)     "INFORMATION", for the purposes of this Agreement, shall mean
         scientific, medical, clinical, toxicological, regulatory, marketing,
         financial and commercial information or data developed or acquired by a
         party, including, without limitation, information that forms part of,
         or otherwise relates to, any of the following, namely: the Intellectual
         Property, methodologies, techniques, formulations, compositions,
         compounds, processes, research, specifications, data, technical
         information, instructions, manuals, papers, financial information,
         market research, marketing reports and any other information provided
         by either Party under this Agreement, manufacturing and commercial
         strategies, programs, devices, and all analyses, compilations, data,
         studies, reports or other documents prepared or derived therefrom.

(gg)     "INITIAL DEVELOPMENT" shall have the meaning set out in Section 4.2.

(hh)     "INTELLECTUAL PROPERTY" shall mean any and all rights arising under or
         by virtue of technology, inventions, discoveries, Improvements,
         Patents, copyrights, copyright applications, industrial designs,
         industrial design applications, trademarks, trademark applications,
         mask works, and rights in respect of Know-How, whether or not patented
         or copyrighted or registered or protected, or capable of such
         registration or protection.

(ii)     "INTERIM AGREEMENT" shall have the meaning ascribed thereto in Recital
         B.

(jj)     "INTERIM AGREEMENT EFFECTIVE DATE" shall mean August 13, 2001.

(kk)     "KNOW-HOW" shall mean any and all data, instructions, processes,
         formulae, concepts, ideas, trade secrets, and other information (in
         written or other tangible form) including, without limitation, any
         chemical, pharmacological, toxicological, clinical, assay, control and
         manufacturing data, information relating to biological materials,
         manufacturing or related technology, analytical methodology, chemical
         and quality control procedures, protocols, techniques, improvements and
         results of experimentation and testing.

(ll)     "MANUFACTURING AND SUPPLY REQUIREMENTS" shall have the meaning set out
         in Section 3.12;

(mm)     "MARKETING DEFAULT" shall have the meaning set out in Section 5.3(b).



<PAGE>
                                     - 5 -


(nn)     "MARKETING DEFAULT NOTICE" shall have the meaning set out in Section
         5.3(c).

(oo)     "MARKETING PLAN" shall mean an annual written marketing plan delivered
         by QLT to Xenova on March 31 of each year and setting out, for the 12
         month periods preceding and following the date thereof all activities
         undertaken or proposed to be undertaken by QLT to bring the Product to
         market, to market the Product and maximize the distribution and sale of
         the Product in the Field in the Territory, as amended by QLT from time
         to time in accordance with this Agreement.

(pp)     "NDA" means a complete New Drug Application and all supplements thereto
         filed with the FDA including all documents, data, and other information
         which are necessary for, or included in, FDA approval to market a new
         drug in the United States of America, as more fully defined in 21
         C.F.R. Part 314.5 et seq ;

(qq)     "NET PROCEEDS" shall mean, without duplication, all revenues, receipts,
         monies and the fair market value of all other consideration received or
         collected, directly or indirectly, by Xenova, or any Affiliate, from
         end users or any independent Third Parties as consideration for the
         commercialization and sale of the Product in the Field outside the
         Territory or, as applicable, the ODD Product in the Territory, provided
         however that "Net Proceeds" shall not include, without duplication:

         (i)      bona fide milestone payments, license and sublicense fees or
                  equity investments received or collected by Xenova or any
                  Affiliate of Xenova from any sub-licensee or other Third
                  Party, in exchange for rights to exploit and commercialize the
                  Product or the ODD Product, or

         (ii)     any revenues, receipts or monies received by Xenova, or any
                  Affiliate of Xenova, on account of (as applicable):

                  (A)      research, development or manufacturing expenses,
                           including a commercially reasonable research,
                           development or manufacturing profit mark up,

                  (B)      bona fide commercially reasonable marketing and
                           distribution expenses, and

                  (C)      other bona fide Third Party expenses and financial
                           obligations of Xenova, or any Affiliate of Xenova,

                  attributable to the research, development, commercialization
                  and/or sale of the Product or the ODD Product.

         For greater clarity, it is the intention of the parties that:

         (iii)    in the event Xenova sublicenses to a Third Party the marketing
                  and distribution of the Product in any country outside the
                  Territory or the ODD Product in the Territory, then "Net
                  Proceeds" would comprise revenues received or collected by
                  Xenova in the nature of "running royalties", after deduction
                  (without duplication) of royalty obligations to Third Parties
                  with respect to the Product or the ODD Product and any other
                  Third Party expenditure directly related to unit sales of the
                  Product or the ODD Product;

         (iv)     in the event Xenova enters into a profit share collaboration
                  or similar arrangement with a Third Party in respect of the
                  marketing and distribution of the Product in any country
                  outside the Territory or the ODD Product in the Territory,
                  then "Net Proceeds" would comprise Xenova's share in the
                  profits from that profit share collaboration, after deduction
                  (without duplication, and to the extent not already deducted
                  in calculating Xenova's share in the profits) of royalty
                  obligations to Third Parties with respect to the Product or
                  ODD Product and any other Third Party expenditure directly
                  related to unit sales of the Product or ODD Product; and

         (v)      in the event Xenova directly markets and distributes the
                  Product in any country outside the Territory or the ODD
                  Product in the Territory, then "Net Proceeds" would also
                  include Net Sales, after deduction of bona fide commercially
                  reasonable marketing and distribution expenses and other bona
                  fide commercially reasonable Third Party expenses and
                  financial obligations of Xenova, or any Affiliate,
                  sub-licensee or sub-distributor of 



<PAGE>
                                     - 6 -


                  Xenova, attributable to the commercialization and sale of the
                  Product or ODD Product in that country after deduction
                  (without duplication) of royalty obligations to Third Parties
                  with respect to the Product or ODD Product and any other Third
                  Party expenditure directly related to unit sales of the
                  Product or ODD Product (including any royalties paid to the
                  Third Party in connection with such commercialization and
                  sale).

         In any case, in the event that Xenova directly manufactures the Product
         or the ODD Product, commercially reasonable manufacturing profits
         attributable to the manufacturing of the Product or the ODD Product are
         not intended to be included in "Net Proceeds".

(rr)     "NET SALES" shall mean, in respect of either party, without
         duplication, the invoiced sales price of Finished Products in the Field
         in the Territory received by such party, its Affiliates, or
         sub-licensees from end users or any independent Third Parties in bona
         fide arm's length transactions exclusively for money or, where the sale
         is not at arm's length or exclusively for money, the price that would
         have been so invoiced if it had been at arm's length or exclusively for
         money, as the case may be, less the following deductions:

         (i)      credits or allowances, if any, given or made for purchase
                  charge backs, price reductions, returns, rebates, rejections,
                  recalls or destruction of spoiled, damaged, out-dated,
                  returned or otherwise unacceptable Product (voluntarily made
                  or requested or made by an appropriate governmental agency,
                  subdivision or department), quantity, trade, early-settlement
                  and/or cash discounts, allowances and/or incentives on account
                  of or in relation to the invoiced sales price of Finished
                  Products;

         (ii)     any duty, tax, excise or governmental charge upon or measured
                  by the production, sale, transportation, delivery or use of
                  Finished Products related to or based upon sales of Finished
                  Products (including value added taxes);

         (iii)    transportation and handling charges or allowances (freight,
                  postage, shipping and insurance), if any, incurred on account
                  of or in relation to the invoiced sales price of Finished
                  Products and provided the amounts are separately charged on
                  the relevant invoice; and

         (iv)     allowances for bad debts and unpaid accounts in respect of the
                  sale of Finished Products;

         provided that in no event will the total of these above-detailed
         deductions in any calendar quarter during the Term be greater than:

         (v)      for any calendar quarter during the first year of sales, [*]of
                  the cumulative total of the invoiced sales prices for such
                  calendar quarter prior to deduction; and

         (vi)     for each subsequent calendar quarter during the Term of this
                  Agreement, [*] of the cumulative total of the invoiced sales
                  prices for such calendar quarter prior to deduction.

         In the event that Finished Products are sold in a combination with
         other Active Pharmaceutical Ingredient(s):

         (vii)    Net Sales, for purposes of royalty payments on the
                  combination, shall be calculated by multiplying the Net Sales
                  of that combination by the fraction A/B, where A is the gross
                  selling price of such Finished Product sold separately and B
                  is the gross selling price of the combination, and

         (viii)   in the event that no such separate sales of the Finished
                  Product are made by QLT, an Affiliate, sub-licensee and/or
                  sub-distributor, or there is no readily determinable market
                  price, Net Sales for royalty determination shall be calculated
                  by multiplying Net Sales of the combination by the fraction
                  C/(C+D) where C is the fully allocated cost of such 


<PAGE>
                                     - 7 -


                  Finished Product and D is the fully allocated cost of such
                  other Active Pharmaceutical Ingredient(s). *

(ss)     "ODD" shall mean oral drug delivery. *

(tt)     "ODD FIELD" shall mean the use of the Drug solely as an oral drug
         delivery system in oncology in the Territory:

         (i)      [*]

         (ii)     [*]

         (iii)    [*]

         (iv)     [*]

         The combined product, which meets each of the criteria as set out in
         this Section 1.1(tt) is hereinafter referred to in this Agreement as
         the "ODD PRODUCT".

(uu)     "PATENT" shall mean:

         (i)      an issued patent or a patent application;

         (ii)     all continuations and continuation(s)-in-part to the issued
                  patent or patent application set out in clause (i);

         (iii)    all divisions, patents of addition, reissues, renewals and
                  extensions of any of the patent, patent application,
                  continuations and continuation(s)-in-part set out in clauses
                  (i) and (ii); and

         (iv)     all foreign counterparts of any of the foregoing.

(vv)     "PERSON" shall mean and include any individual, corporation,
         partnership, firm, joint venture, syndicate, association, trust,
         government body, and any other form of entity or organization.

(ww)     "PHASE I" shall mean that portion of the FDA submission and approval
         process and that stage of clinical development which provides for the
         first introduction into humans of a Drug and/or Product for the purpose
         of determining human toxicity, metabolism, absorption, elimination and
         other pharmacological action as more fully defined in 21 C.F.R. Part
         312.21(a), and such equivalent regulations or standards of countries
         outside the United States of America as may be applicable to activities
         conducted hereunder.

(xx)     "PHASE II" shall mean that portion of the FDA submission and approval
         process and that stage of clinical development which provides for the
         initial trials of a Drug and/or Product on a limited number of patients
         for the purposes of determining dose and evaluating safety and
         preliminary efficacy in the proposed therapeutic indication, as more
         fully defined in 21 C.F.R. Part 312.21(b), and such equivalent
         regulations or standards of countries outside the United States of
         America as may be applicable to activities conducted hereunder.

(yy)     "PHASE ILB" shall mean a Phase II small scale efficacy study on an
         insufficient number of patients to support Regulatory Approvals in the
         proposed therapeutic indication.

(zz)     "PHASE III" shall mean that portion of the FDA submission and approval
         process and that stage of clinical development which provides for
         expanded trials of a Drug and/or Product on sufficient numbers of
         patients to establish the safety and efficacy of a Drug and/or Product,
         to support regulatory approval in the proposed therapeutic indication,
         as more fully defined in 21 C.F.R. Part 312.21(c), and such equivalent
         regulations or standards of countries outside the United States of
         America as may be applicable to activities conducted hereunder.



<PAGE>
                                     - 8 -


(aaa)    "PHASE IV" shall mean the stage of clinical development that includes
         those post-marketing studies, usually not required as a condition for
         approval, that may be conducted to delineate additional information
         about the risks, benefits, and optimal use of a Drug and/or Product.

(bbb)    "PRODUCT" shall mean any product for use in the Field in the Territory
         which incorporates the Drug in any formulation or dosage form, and any
         improvements to such product, including products having a different
         strength (i.e., a different amount of active ingredient delivered in
         the same dosage form), or having only cosmetic differences such as
         size, colour, shape, etc., or similar non-therapeutic changes.

(ccc)    "PROGRAM" shall mean all activities undertaken by the parties, whether
         alone or together or through Third Parties for the development of the
         Product in the Development Territory, in accordance with the terms and
         conditions of the Interim Agreement and this Agreement, which shall
         include the Initial Development and the regulatory, clinical testing
         and other development activities summarized in EXHIBIT 1.1(CCC).

(ddd)    "PROGRAM INFORMATION" shall mean:

         (i)      any Information generated, developed or acquired by or on
                  behalf of either party under or as a result of the Program;

         (ii)     any Available Xenova Independent Program Information;

         (iii)    any other Xenova Independent Program Information generated,
                  developed or acquired by or on behalf of Xenova with reference
                  to or use of:

                  (A)      QLT's Confidential Information, or

                  (B)      any Information referenced under clause (i) owned by
                           QLT; and

         (iv)     any Existing Xenova Program Information,

         provided that, notwithstanding the foregoing, Program Information will
         not include any trademarks.

(eee)    "QLT PATENTS" shall mean any and all Patents developed or acquired by
         or on behalf of QLT that are required for QLT to continue the Program
         and under which Xenova would require a license or sub-license to
         lawfully develop, make, have made, use, sell, have sold, offer for
         sale, import or export the Drug and/or the Product for commercial sale:

         (i)      in the Field, outside the Territory; or

         (ii)     outside the Field, anywhere, world-wide;

         as contemplated by and in accordance with the terms and conditions set
         out in this Agreement.

(fff)    "QLT'S PROGRAM INFORMATION" shall mean any Program Information
         generated, developed or acquired by or on behalf of QLT under or as a
         result of the Program.

(ggg)    "RECALL" shall mean:

         (i)      any action by QLT, Xenova or any of their respective
                  Affiliates, to recover possession of the Drug, Product or
                  Finished Product shipped to Third Parties; or

         (ii)     any action by the FDA or any other applicable governmental or
                  regulatory agency in any jurisdiction, to detain or destroy
                  the Drug, Product or Finished Product or prevent release of
                  the Drug, Product or Finished Product.

         "RECALLED" and "RECALLING" shall have comparable meanings.

(hhh)    "REGISTRATION PACKAGE" shall mean:

         (i)      Modules 1-5 of the ICH M4 Common Technical Document submitted
                  to the FDA in respect of the Product, the Table of Contents
                  summary of which is attached as EXHIBIT 1.1(HHH) -
                  REGISTRATION PACKAGE for illustrative purposes; and



<PAGE>
                                     - 9 -


         (ii)     all data generated from the studies specified by the FDA
                  during Xenova's meeting with the FDA on 25 April, 2001 (which
                  studies are listed at the end of EXHIBIT 1.1(HHH) -
                  REGISTRATION PACKAGE), unless it is later determined that any
                  of the studies are no longer required or would not be required
                  by the FDA.

(iii)    "REGULATORY APPROVAL" shall mean any and all approvals, licenses,
         registrations or authorizations of any federal, state, provincial or
         local regulatory agency, department, bureau or other governmental
         entity, necessary for the manufacture, use, storage, import, export,
         transport, marketing, distribution or sale of the Drug and/or the
         Product in a country or regulatory jurisdiction.

(jjj)    "SECOND LINE INDICATION" shall mean Regulatory Approval by the FDA in
         the United States of America for the use of the Product as a single
         agent or in combination with a chemotherapeutic agent for the treatment
         of patients after failure of first line cancer chemotherapy.

(kkk)    "SERIOUS ADVERSE EVENT" shall mean any Adverse Event (as defined in
         Section 4.8(a) that (at any dose):

         (i)      results in death;

         (ii)     is life-threatening (i.e., the patient was at risk of death at
                  the time of the event);

         (iii)    requires inpatient hospitalization or prolongation of existing
                  hospitalization;

         (iv)     results in persistent or significant disability/incapacity;

         (v)      results in congenital anomaly/birth defect; or

         (vi)     other medically significant events that may jeopardize the
                  patient or may require intervention to prevent one of the
                  outcomes listed in the definition above should be considered
                  serious. Examples of such events are intensive treatment for
                  allergic bronchospasm, blood dyscrasias or convulsions that do
                  not result in hospitalization, or development of drug
                  dependency or drug abuse.;


(lll)    "SEIZURE" shall mean any action by the FDA or any other applicable
         governmental or regulatory agency in any jurisdiction, to detain or
         destroy the Drug, Product or Finished Product or prevent release of the
         Drug, Product or Finished Product. "Seized" and "SEIZING" shall have
         comparable meanings.

(mmm)     "SPECIFIC ACTION" shall have the meaning set out in Section 5.2(c).

(nnn)    "SPENDING CAP" shall have the meaning set out in Section 4.3.

(ooo)    "TERM" shall have the meaning set out in Section 16.2(a).

(ppp)    "TERRITORY" shall mean the United States of America (including the US
         Territories), Canada and Mexico.

(qqq)    "THIRD PARTY" shall mean any Person other than a party to this
         Agreement or, where the context permits or requires, other than an
         Affiliate of a party to this Agreement;

(rrr)    "THIRD PARTY LICENSES" shall mean any agreement(s), whether written or
         oral, to which Xenova is a party and under which Xenova is expressly
         granted and obtains legal rights to use Intellectual Property of any
         Person other than Xenova in the manner to be used by Xenova or QLT in
         the development, manufacturing, marketing, supply and other
         commercialization activities contemplated by this Agreement;

(sss)    "US TERRITORIES" shall mean the territories and possessions of the
         United States of America, including, the Commonwealth of Puerto Rico,
         the territories of Guam, American Samoa, and the Virgin Islands, the
         Trust Territory of the Pacific Islands, and the possessions of Midway
         and Wake Islands;

(ttt)    "VALID CLAIM" shall mean, with respect to each country in the
         Territory:

         (i)      a claim of an issued, unexpired patent; or



<PAGE>
                                     - 10 -


         (ii)     a claim of a pending patent application for a patent, provided
                  the application has not been pending for more than [*],

         that has not been, as applicable:

         (iii)    permanently revoked, held invalid, unpatentable or
                  unenforceable by a final decision of a court or governmental
                  agency of competent jurisdiction, which decision is
                  unappealable or was not appealed within the time allowed
                  therefor;

         (iv)     admitted in writing to be invalid or unenforceable by the
                  holder(s) by reissue, disclaimer or otherwise; or

         (v)      lost through an interference proceeding.

(uuu)    "XENOVA INDEPENDENT PROGRAM" shall mean any studies or other activities
         conducted by or on behalf of Xenova:

         (i)      in the Field, outside the Territory (subject to QLT's
                  exclusive development rights in the Development Territory
                  under Article 4, for as long as those rights continue); or

         (ii)     outside the Field, including in the field of ODD, anywhere,
                  world-wide;

         relating to the Drug or the Product or the use or manufacture thereof,
         provided that any such studies or other activities shall not be in
         breach of the restrictions set out in Article 6 or the exclusivity of
         any exclusive license granted by Xenova to QLT under this Agreement.

(vvv)    "XENOVA INDEPENDENT PROGRAM INFORMATION" shall mean any Information
         generated, developed or acquired by or on behalf of Xenova under or as
         a result of a Xenova Independent Program.

(www)    "XENOVA PATENTS" shall mean:

         (i)      all Patents listed in EXHIBIT 1.1(WWW); and

         (ii)     any and all Patents hereafter owned by or licensed to Xenova,
                  including any Patents to any Improvements to the Patents
                  listed in EXHIBIT 1.1(WWW), under which QLT would require a
                  license or sub-license to lawfully develop, make, have made,
                  use, sell, have sold, offer for sale, import or export (from
                  one part of the Territory to another) the Drug and/or the
                  Product for commercial sale in the Field in the Territory (and
                  the Development Territory for as long as QLT's development
                  rights under Article 4 continue), as contemplated by and in
                  accordance with the terms and conditions set out in this
                  Agreement.

(xxx)    "XENOVA'S PROGRAM INFORMATION" shall mean any Program Information that
         is not QLT Program Information.

1.2      OTHER DEFINITIONS

Any words defined elsewhere in this Agreement shall have the meaning assigned
thereto.

                        ARTICLE 2 - PRODUCT DEVELOPMENT

2.1      PROGRAM COMMENCEMENT

The parties acknowledge and agree that, following execution of the Interim
Agreement, the parties commenced the Program in accordance with the terms and
conditions of the Interim Agreement and, upon execution of this Agreement, they
shall continue the Program in accordance with the terms and conditions of this
Agreement.

2.2      DEVELOPMENT COMMITTEE

(a)      Establishment. The parties acknowledge that they have, in accordance
         with the terms and conditions of the Interim Agreement, established and
         shall continue under this Agreement, a Development Committee.



<PAGE>
                                     - 11 -


(b)      Mandate. The Development Committee shall have authority over the
         following areas:


         (i)      promoting the pooling of expertise and information exchange by
                  the parties with respect to the development of the Drug and
                  the Product under the Program (including the work conducted by
                  Xenova as contemplated in Section 4.4);

         (ii)     overview of QLT's strategies for clinical, regulatory and
                  manufacturing issues within the Development Territory,
                  including the selection of primary and alternative Third Party
                  contract manufacturers;

         (iii)    receiving overviews of Xenova's strategies for clinical,
                  regulatory and manufacturing issues within Europe and the rest
                  of the world, including overviews of the selection of primary
                  and alternative Third Party contract manufacturers [*];

         (iv)     receiving reports of marketing matters from QLT in respect of
                  the Territory and from Xenova in respect of Europe and the
                  rest of the world [*] and

         (v)      consideration of and making of decisions on any other material
                  matters set out in this Agreement that the parties agree shall
                  be referred to the Development Committee for determination.

(c)      Number of Members. The Development Committee shall consist of an equal
         number of members appointed by each party. Each member shall have the
         appropriate background and expertise to contribute to the Development
         Committee. Each party may change its members on the Development
         Committee from time to time.

(d)      Chair and Secretary. Unless the parties otherwise agree, QLT shall
         appoint the chair of the Development Committee from among its members
         on the Development Committee and Xenova shall appoint the secretary of
         the Development Committee from among its members on the Development
         Committee. The Chairman and Secretary shall not have any additional or
         casting vote.

(e)      Meetings. The Development Committee shall meet at a minimum 4 times per
         calendar year, at least once in person and otherwise by videoconference
         or telephone conference, provided that the parties may, upon mutual
         agreement of the Parties following completion of the Initial
         Development, dissolve the Development Committee or reduce the number of
         meetings held per calendar year.

(f)      Voting. Each member of the Development Committee shall have one vote.
         In the event of a tie vote, either party may refer the matter to their
         respective Chief Executive Officers for resolution. Notwithstanding the
         foregoing, the representatives of QLT shall collectively have one
         additional tie-breaking or casting vote with respect to:

         (i)      all matters relating to any clinical studies and/or
                  development activities (including regulatory and manufacturing
                  activities) for the Drug and the Product in the Field in the
                  Development Territory, but only until completion of the
                  Initial Development, or thereafter in the Territory; and

         (ii)     all matters relating to any commercialization activities for
                  the Product in the Field in the Territory, except in the event
                  that Xenova has exercised its rights (if any) under Section
                  5.3(d)).

         When QLT wishes to exercise the tie-breaking or casting vote in respect
         of the matters set out in clauses (i) and (ii), QLT shall first refer
         the matter to the Chief Executive Officers of each party for
         resolution. Failing resolution, QLT's tie-breaking or casting vote
         shall be exercised by the Chief Executive Officer of QLT (or another
         Executive Officer of QLT as his or her designee), irrespective of
         whether that Executive Officer is a regular member of the Development
         Committee. With respect to any other matters for which the Development
         Committee has a tie vote, such deadlock shall be referred for
         resolution in accordance with Sections 17.2 or 17.3, as applicable.



<PAGE>
                                     - 12 -


         While the general mandate of the Development Committee to promote,
         review, receive and consider matters shall continue for the Term of
         this Agreement, its powers shall be limited as follows:


         (iii)    [*];

         (A)      (iv)              [*].

(g)      Sub-Committees. The Development Committee may, from time to time in its
         discretion, form sub-committees (standing or ad hoc) to consider and/or
         to provide guidance and oversight on specific development matters (for
         example, the Development Committee will set up a European development
         sub-committee to consider the European aspects of the Program).

                   ARTICLE 3 - CMC, MANUFACTURING AND SUPPLY

3.1      OVERVIEW

In connection with the rights and licenses granted by Xenova to QLT under this
Agreement, Xenova will transfer or otherwise make available to QLT the Drug, the
Product and all Information as are and to the extent necessary or useful for QLT
to carry out its activities as contemplated by this Article 3.

3.2      DEVELOPMENT SUPPLY

Subject to and in accordance with the provisions of this Agreement (including
Section 8.4), Xenova hereby grants to QLT the exclusive right and QLT shall have
the responsibility to manufacture and supply, at QLT's cost, the Drug and the
Product (with the right to sub-contract the manufacture and supply to QLT of
Drug and Product) for development of the Drug and the Product in the Field in
the Development Territory, on the terms and conditions set out in this
Agreement. For greater certainty, the parties agree that QLT may manufacture or
have manufactured the Drug and the Product at any location, world-wide, provided
that all such quantities of the Drug and the Product shall be used solely for
development activities in the Field in the Territory and for Initial Development
activities in the Field in Europe. In connection with the foregoing grant of
rights, the parties acknowledge and agree as follows: 

(a)      Drug. Xenova has transferred or will complete the transfer, as the case
         may be, to QLT of approximately [*] of the Drug in its possession or
         control, including quantities of the Drug ordered from [*] but not
         released as of the Effective Date. Xenova will supply such quantities
         of the Drug to QLT at no charge to QLT.

(b)      Product. Xenova has transferred or will complete the transfer, as the
         case may be, to QLT of at least [*] of the Product in its possession or
         control, including quantities of the Product ordered from [*] but not
         released as of the Effective Date, and any other ampoules of the
         Product not required for Xenova's activities under the Program or for
         any Xenova Independent Program. Xenova will supply such quantities of
         the Product to QLT at no charge to QLT.

3.3      COMMERCIAL SUPPLY IN THE TERRITORY

(a)      Subject to and in accordance with the provisions of this Agreement,
         including Section 8.4 and Xenova's rights under Section 5.3(d), Xenova
         hereby grants to QLT the exclusive right and QLT shall have the
         responsibility to manufacture and supply the Drug and/or the Product
         (with the right to sub-contract the manufacture and supply to QLT of
         the Drug and the Product) for commercialization and sale of the Drug
         and/or Product in the Field in the Territory, on the terms and
         conditions set out in this Agreement.

(b)      Subject to the terms and conditions in this Agreement, Xenova agrees
         that it will not, and will not grant to any Person any rights to
         conduct any activity that is and remains exclusively licensed to QLT
         under this Agreement.



<PAGE>
                                     - 13 -


3.4      XENOVA RETAINS ALL OTHER MANUFACTURING RIGHTS

Except as granted to QLT under this Article 3, Xenova will retain all rights to
manufacture and supply the Drug and/or the Product. For greater certainty, the
parties agree that Xenova may manufacture or have manufactured the Drug and/or
the Product at any location, world-wide, provided that all such quantities of
the Drug and the Product shall be used solely for commercialization and sale by
Xenova, its affiliates and its licensee(s):

(a)      in the Field outside the Territory; or

(b)      outside the Field, anywhere, world-wide.

3.5      TRANSFER OF TECHNOLOGY

In order to ensure a smooth and efficient transfer from Xenova to QLT of
responsibility for the manufacture and supply of the Drug and the Product for
Initial Development, for further development under the Program in the Field in
the Development Territory and commercial sale of the Drug and the Product in the
Field in the Territory, the parties acknowledge and agree as follows: 

(a)      Safety. Xenova has provided to QLT copies of the Material Safety Data
         Sheets for the Drug and the Product and has provided QLT with all other
         relevant information available and known to Xenova concerning the
         safety, handling, use, disposal and environmental effects of the Drug
         and the Product or as may be necessary or useful to conduct the
         Program.

(b)      Manufacturing Information. Xenova will provide to QLT all Information
         relating to the manufacture, testing and supply of the Drug and the
         Product reasonably necessary or useful for QLT to assume conduct of the
         manufacturing activities contemplated by this Article 3, including,
         without limitation, copies of:

         (i)      all specifications and formulations for the Drug and the
                  Product in addition to the Drug Specification;

         (ii)     all manufacturing instructions, protocols and procedures for
                  the manufacture and processing of the Drug and the Product,
                  including any test data, development reports and master batch
                  records,

         (iii)    all test data, analytical reports, protocols and procedures
                  for raw material testing, in-process testing, release testing
                  and any other analytical testing required for the manufacture
                  and processing of the Drug and the Product, and

         (iv)     all validation reports (if any) in support of the
                  qualification and validation of facilities to GMPs for the
                  manufacture and processing of the Drug and the Product,
                  including reports relating to installation qualification,
                  operational qualification, process validation, sterilization
                  validation and cleaning validation.

(c)      Samples. Xenova shall provide to QLT manufacturing batch samples of the
         Drug and the Product provided to it by its manufacturing contractors
         (if available) and samples of all reference standards reasonably
         necessary for QLT to assume conduct of the manufacturing activities
         contemplated by this Article 3.

3.6      MANUFACTURING QUALITY

(a)      Except for the development activities to be conducted under the
         Program, the sharing of Program Information under this Agreement, and
         the provision of the development supply of the Drug and/or Product by
         Xenova to QLT in accordance with Section 3.2, QLT and Xenova will each
         be responsible for the qualification and validation of their respective
         Drug and/or Product manufacturers' facilities to GMPs for the
         manufacture and processing of the Drug and/or the Product.

(b)      Each party shall use commercially reasonable efforts to ensure that any
         Person with whom it contracts for the manufacture and processing of the
         Drug and/or the Product for clinical or commercial use shall undertake
         to comply with the following requirements:



<PAGE>
                                     - 14 -


         (i)      all manufacturing and processing activities shall be conducted
                  in a competent fashion and in accordance with GMPs, any
                  quality system agreement executed by the parties, the
                  applicable specification and the applicable validation
                  protocol or master batch record, as the case may be;

         (ii)     all manufacturing facilities, equipment, utilities and systems
                  used for the manufacture and processing of the Drug and/or the
                  Product shall comply with GMPs or GLPs, as applicable,
                  including installation qualification and operational
                  qualification requirements, requirements for environmental
                  monitoring in manufacturing areas and requirements relating to
                  the conveyance of bulk materials within such facilities;

         (iii)    all analytical work shall be performed in a manner and in a
                  laboratory which complies with GMPs and all related testing
                  procedures and equipment shall be validated prior to use;

         (iv)     all personnel furnished to perform the work shall be qualified
                  to perform the tasks and functions which they are assigned;

         (v)      all Drug and/or Product manufactured or processed shall
                  satisfy the applicable specification as at the date of
                  delivery;

         (vi)     all Finished Product manufactured or processed, and any other
                  batch of the Product designated in advance as a batch to be
                  used as clinical or commercial supplies, shall be
                  merchantable, free from defects and shall not be adulterated
                  or misbranded within the meaning of the Act, or any equivalent
                  legislation in any jurisdiction in which the Finished Product
                  is to be marketed and sold;

         (vii)    all Drug and/or Product manufactured or processed shall be
                  delivered free and clear of any security interests, liens,
                  claims, pledges or encumbrances of any kind or nature;

         (viii)   all transportation and storage of raw materials, Drug and
                  Product shall be performed in compliance with GMPs and in
                  accordance with the applicable specification, any applicable
                  quality system agreement and applicable shipping instructions;

         (ix)     all manufacturing and processing activities, including waste
                  disposal, shall be performed in accordance with applicable
                  United States of America and other foreign federal, state,
                  provincial and local laws, regulations and bylaws, including,
                  without limitation, all environmental laws;

         (x)      all applicable licenses, permits, certificates, authorizations
                  or approvals from all applicable United States of America and
                  other foreign federal, state, provincial, local and other
                  authorities necessary to conduct its business and manufacture,
                  package, label, ship, export, import and deliver the Drug
                  and/or the Product shall have been obtained and shall be
                  maintained in full force and effect;

         (xi)     appropriate records and reports shall be recorded and
                  maintained and shall be accurate and complete in all material
                  respects; and

         (xii)    no Intellectual Property of any Third Party shall be used in
                  the manufacture and processing of the Drug and/or the Product,
                  except with prior written consent of such Third Party.

3.7      MANUFACTURING CO-OPERATION

(a)      QLT and Xenova acknowledge and agree that, notwithstanding their
         respective rights and responsibilities under this Agreement, they
         desire to minimize unnecessary costs and time delays in their
         respective development and commercialization activities world-wide,
         particularly manufacturing and supply aspects including the
         qualification and validation of facilities for the manufacture and
         processing of the Drug and the Product.

(b)      In connection with the foregoing, the parties agree that [*]:



<PAGE>
                                     - 15 -


         (i)      the manufacturing facility and its equipment, utilities and
                  systems used for the manufacture and processing of the Drug
                  and/or the Product shall comply with GMPs or GLPs, as
                  applicable, including installation qualification and
                  operational qualification requirements, requirements for
                  environmental monitoring in manufacturing areas and
                  requirements relating to the conveyance of bulk materials
                  within such facilities, for the jurisdictions where the Drug
                  and/or Product is to be marketed and sold;

         (ii)     the manufacturing facility has obtained and maintains in full
                  force and effect all applicable licenses, permits,
                  certificates, authorizations or approvals from all applicable
                  United States of America and other foreign federal, state,
                  provincial, local and other authorities necessary to conduct
                  its business and manufacture, package, label, ship, export,
                  import and deliver the Drug and/or the Product;

         (iii)    the manufacturing facility has the capability to manufacture
                  and process the Drug and/or the Product in a competent fashion
                  and in accordance with GMPs, any quality system agreement
                  executed by the parties, the applicable specification and the
                  applicable validation protocol or master batch record, as the
                  case may be;

         (iv)     the manufacturing facility has the production capacity to
                  manufacture and process the Drug and/or the Product in
                  accordance with the appointing party's projected forecasts for
                  the supply of the Drug and/or the Product; and

         (v)      the manufacturing facility has the capability to manufacture
                  and process the Drug and/or the Product at a similar or better
                  quality or upon similar or better commercial terms than an
                  alternate site identified by the appointing party.

(c)      [*]Xenova shall provide an introduction for QLT to [*] so that QLT may
         establish its own working relationship and enter into appropriate
         agreements with [*] for the development, manufacture and supply of the
         Drug and/or the Product for QLT for development of the Drug and/or the
         Product in the Field in the Development Territory and for QLT for
         commercialization of the Drug and/or the Product in the Field in the
         Territory.

(d)      Xenova and QLT agree that they will use commercially reasonable efforts
         to ensure that the manufacturing processes, in-process analytical
         methods, release analytical methods and specifications used in the
         manufacture and processing of the Drug and the Product by or for QLT
         and those used in the manufacture and processing of the Drug and the
         Product by or for Xenova are as similar as possible.

(e)      Xenova and QLT agree to co-operate fully to ensure that all inspections
         and audits by regulatory authorities of each party's manufacturing
         facilities used in the manufacture and processing of the Drug and/or
         the Product are conducted as required and that appropriate support is
         provided by the parties for investigations and implementations of
         Recalls.

(f)      In the event that [*] relating to the subject matter of this Agreement,
         and in the event that QLT's (or QLT [*]) [*] is in material breach of
         its Manufacture and Supply Requirements, Xenova may deliver written
         notice to QLT (or QLT's [*]) of a curable material breach of the
         Manufacturing and Supply Requirements by QLT's (or QLT's [*]) [*], in
         which case QLT or QLT's [*] shall have a period of 6 months to ensure
         that the [*]:

         (i)      cures the material breach within the 6 month period; or

         (ii)     if the breach is not capable of cure within the 6 month cure
                  period, to diligently commence pursuing a cure within one
                  month following such notice and continue to diligently pursue
                  the cure to completion within a reasonable period,

         to [*]. If the [*] fails to cure the material breach with the 6 month
         cure period or such longer reasonable period, or if the material breach
         of the Manufacturing and Supply Requirements by QLT's (or QLT's [*])[*]
         is one that, by its nature, is incurable, Xenova may, in its sole
         discretion:

         [*]


* material has been omitted and filed separately with the Commission

<PAGE>
                                     - 16 -


         If the parties are in dispute over whether Xenova is entitled to
         exercise either of the rights stated in Sections 3.73.7(f)(i)or
         3.73.7(f)(i), either party may refer the dispute to expedited
         arbitration under Section 17.2.

3.8      EQUIVALENCY OF FINISHED PRODUCT

(a)      QLT and Xenova will use commercially reasonable efforts to ensure that
         the Finished Product manufactured and used for: 

         (i)     Initial Development in the Development Territory (by QLT and/or
                 its Third Party contractors); 

         (i)     commercial supply in Europe (by Xenova and/or its Third Party
                 contractors); and

         (ii)    commercial supply in the Territory (by QLT and/or its Third
                 Party contractors),

         is manufactured using the same method and meets the same Drug
         Specifications, provided that neither party will be required to utilize
         more than commercially reasonable efforts to effect a change in the
         Drug Specifications once implemented by that party or that would
         require the destruction or non-use of Finished Product that has already
         been manufactured.

3.9      RECIPROCAL RIGHT OF INSPECTION

Each of Xenova and QLT shall have the right, on reasonable written notice to the
other, to conduct periodic inspections of the other party's records and
manufacturing facilities, as follows:

(a)      Manufacturing Facilities. Each party may, no more than once per
         calendar year (unless there exist ongoing manufacturing problems,
         sterility failures, recalls or other similar events, in which case such
         inspections may take place on a more frequent basis), itself, or
         through its representatives, audit and inspect that portion of the
         manufacturing facilities used by or for the other party in the
         manufacture and processing of the Drug and the Product, including, to
         the extent possible with the other party's assistance, the
         manufacturing facilities of the other party's Third Party manufacturers
         of the Drug and/or the Product.

(b)      Records. Each party may itself, or through its representatives, audit,
         review and make such copies of records and documents relating to the
         manufacture and processing of the Drug and the Product as reasonably
         necessary for the purpose of assessing the other party's compliance
         with GMPs and its contractual obligations regarding the manufacture and
         processing of the Drug and the Product, including, to the extent
         possible with the other party's assistance, any records and documents
         maintained at the offices and manufacturing facilities of the other
         party's Third Party manufacturers of the Drug and/or the Product or
         their representatives.

Any audit, inspection or review under this section shall be conducted during
regular business hours at a time and date mutually agreeable between the
parties. Each party shall provide the other party with reasonable co-operation
in carrying out any inspections or audits conducted pursuant to this Section
3.9.

3.10     IMPLEMENTATION OF RECALLS

(a)      If either party has grounds to implement a Recall, the party
         recommending such Recall shall immediately notify the other party in
         writing of such grounds and identify those batches of Product that may
         be affected.

(b)      QLT and its designees shall have the sole responsibility to implement
         any Recall of any Drug and/or Product manufactured and processed by or
         for QLT or any Drug and/or Product sold in the Field in the Territory.
         Xenova shall provide QLT and its designees with reasonable co-operation
         and take such other actions in connection therewith as QLT and its
         designees may reasonably request in implementing any Recall of the Drug
         and/or the Product by QLT and responding to any Seizure of the Drug
         and/or the Product in the Field in the Territory.



<PAGE>
                                     - 17 -


(c)      Xenova and its designees shall have the sole responsibility to
         implement any Recall of any Drug and/or Product manufactured and
         processed by or for Xenova or any Drug and/or Product sold in the Field
         outside the Territory or outside the Field world-wide. QLT shall
         provide Xenova and its designees with reasonable co-operation and take
         such other actions in connection therewith as Xenova and its designees
         may reasonably request in implementing any Recall of the Drug and/or
         the Product by Xenova and responding to any Seizure of the Drug and/or
         the Product in the Field outside the Territory or outside the Field
         worldwide.

3.11     MUTUAL LIABILITY FOR RECALL

In the event of a Recall, Seizure or other similar governmental action with
respect to the Drug and/or the Product arising from breach of this Agreement by
either party, the breaching party shall reimburse or credit the non-breaching
party, at the option of the non-breaching party, for reasonable out of pocket
expenses expended by the non-breaching party and its designees as a result of
the Recall or Seizure, except as otherwise specifically set out in this
Agreement.

3.12     MANUFACTURE AND SUPPLY AGREEMENT REQUIREMENTS

Each of Xenova and QLT shall include, in agreements with Third Parties for the
manufacture and processing of the Drug and/or the Product, terms and conditions
that:


[*](collectively, the "MANUFACTURING AND SUPPLY REQUIREMENTS").

                ARTICLE 4 - CLINICAL AND REGULATORY DEVELOPMENT

4.1      GRANT OF RIGHTS

Except for Drug and Product provided by Xenova to QLT under Section 3.2, Xenova
hereby grants to QLT the exclusive right and QLT shall have the responsibility
to conduct (without the right to sub-license but with the right to sub-contract)
at QLT's cost, all clinical studies and other development activities for the
Drug and/or the Product in the Field in the Territory and (for as long as QLT is
responsible for Initial Development) in Europe, on and subject to the terms and
conditions set out in this Agreement (including Sections 5.2 and 8.4).

From time to time during the period in which QLT is responsible for Initial
Development, Xenova may request that [*]. Xenova may proceed with such studies
and/or activities if the same have been expressly approved in advance as
evidenced by a written resolution of the Development Committee.

4.2      INITIAL DEVELOPMENT IN THE DEVELOPMENT TERRITORY

(a)      QLT will be responsible for conducting, at its cost, clinical and other
         studies for the development of the Drug and/or the Product in the Field
         in the Development Territory. In particular, QLT will work diligently
         and utilize sound and reasonable scientific, business and medical
         practice and judgement to:

         (i)      conduct the Program in accordance with the development plan
                  set out in EXHIBIT 1.1(CCC);

         (ii)     file with the FDA an NDA for the Product in the Field in the
                  United States of America in a timely manner; and

         (iii)    deliver to Xenova the Registration Package for use by Xenova
                  in support of its registration of the Product in Europe;

         (collectively, the "INITIAL DEVELOPMENT").

(b)      The Initial Development shall be considered completed upon the earlier
         to occur of:



<PAGE>
                                     - 18 -


         (i)      QLT spending an amount equal to the Spending Cap on the
                  Initial Development and declining to spend any further amounts
                  thereon; or

         (ii)     the later of:

                  (A)      delivery by QLT to Xenova of the Registration Package
                           as set out above; or

                  (B)      receipt by QLT of the first NDA approval for the
                           Product in the Field;

         whereupon:

         (iii)    Europe will be excluded from the geographic scope of the
                  Development Territory and QLT's rights and obligations with
                  respect to Initial Development in Europe only shall cease;

                  Notwithstanding the foregoing, QLT shall have the right to
                  continue to conduct all clinical studies and other development
                  activities for the Drug and/or Product in the Field in Europe
                  which have been approved by the Development Committee; and

         (iv)     QLT will have no further obligations to Xenova with respect to
                  development of the Product in the Field in Europe, except for
                  the assistance provisions set out in Section 4.7 and elsewhere
                  in this Agreement.

4.3      QLT'S CONTRIBUTIONS

Xenova acknowledges and agrees that in no event will QLT, in performing its
obligations under this Agreement, be obligated to expend in excess of [*] (the
"SPENDING CAP") on the Initial Development. In the event that QLT, in conducting
the Initial Development, expends or anticipates expending an amount that exceeds
the Spending Cap, the parties will reasonably discuss in good faith, having
regard to the contributions of each party, some form of cut-back in the Program
in order to maintain Initial Development costs within the Spending Cap, which
may include resource re-allocation, alterations in the development exclusivity
provisions for Europe, cost sharing or other arrangements for the continuation
of the Program. This provision will not be subject to (expedited or traditional)
arbitration in the event that the parties do not in good faith come to any
resolution hereunder and, in such case, Section 4.2(b) will apply.

4.4      PRIOR PROGRAM COMMITMENTS

Xenova shall be responsible for and shall satisfy all obligations, liabilities
and commitments pertaining to the development of the Drug and/or Product
accruing prior to the Effective Date. In addition, Xenova shall be responsible,
at its own cost, to complete the following contractually-committed activities
which are ongoing as of the Effective Date:

(a)      complete the ongoing clinical studies and non-clinical studies
         (including completion of the study reports therefor) set out in EXHIBIT
         1.1(HHH) except the Phase IIb study being conducted at MD Anderson
         Medical Centre; and

(b)      [*]

The parties acknowledge that they have discussed ongoing responsibility for
ongoing stability and analytical studies for the Drug and/or the Product at [*],
and have determined that [*]. 

4.5      DEVELOPMENT PROGRESS REPORTS

Notwithstanding any reports prepared by the Development Committee during the
Term, each party will deliver to the other party annual progress reports
regarding such party's research and development activities relating to the Drug
and/or the Product, which shall include:

(a)      a summary of such party's research and development activities during
         the preceding calendar year and its anticipated activities in the
         forthcoming calendar year; and

(b)      in the case of the report to be delivered by QLT to Xenova only, until
         completion of the Initial Development pursuant to Section 4.2(b), a
         summary of such party's proposed budgets for such research and
         development activities, as they become available.


* material has been omitted and filed separately with the Commission

<PAGE>
                                     - 19 -


In the case of the summary to be provided by Xenova to QLT under clause (a),
subject to Section 7.5, Xenova may limit its disclosure where such disclosure is
[*].

4.6      REGULATORY RESPONSIBILITY IN THE TERRITORY

(a)      Grant of Rights. Xenova hereby grants to QLT, for the Term, the
         exclusive right (to the exclusion of Xenova and all other Persons) and
         QLT shall have the responsibility, at QLT's cost, to conduct (whether
         itself or through one or more sub-contractors) all regulatory
         activities for the development and commercialization in the Field in
         the Territory of the Drug and/or the Product, including the submission
         of applications for Regulatory Approvals for the development and
         commercialization of the Drug and/or the Product in the Field in the
         Territory, the qualification and validation of facilities for the
         manufacture and processing of the Drug and/or the Product for
         commercialization and sale in the Field in the Territory, and all
         communication with the FDA and other regulatory authorities regarding
         such applications and other regulatory filings for the development,
         commercialization and sale of the Drug and/or the Product in the Field
         in the Territory, on and subject to the terms and conditions set out in
         this Agreement (including Sections 3.4 and 8.4).

(b)      Transfer. Xenova will, at its cost, work to provide the following as
         soon as practicable:

         (i)      the assignment and transfer to QLT of all regulatory
                  applications, filings and correspondence for the Drug and/or
                  the Product in the Field in the Territory, including any IND
                  in the United States of America; and

         (ii)     access to QLT to all regulatory applications, filings and
                  correspondence for the Drug and/or the Product outside the
                  Field in the Territory, including any IND in the United States
                  of America.

         QLT will co-operate with Xenova in such matters, as reasonably
         required, at QLT's expense.

(c)      Quality Module Section. QLT will prepare, in consultation with Xenova,
         Module 3 of the ICH M4 Common Technical Document of an NDA filing in
         support of Regulatory Approvals for the Drug and/or the Product in the
         Field in the Territory and the qualification and validation of
         facilities to GMPs for the manufacture and processing of the Drug
         and/or the Product.

         QLT will retain ownership of all regulatory applications and filings
         for the Drug and/or the Product in the Field in the Territory after
         completion of development of the Product in the Field in the Territory.

(d)      Xenova Observer Role. During the Term, Xenova shall have the right to
         participate, at Xenova's cost, as an observer:

         (i)      in any material meetings to be held between QLT (or its
                  Affiliate or sub-licensee) and the FDA or any other regulatory
                  authorities in the Territory relating to any Regulatory
                  Approvals for the Drug and/or the Product in the Field,

         (ii)     in any regulatory inspections at manufacturing, clinical and
                  testing sites for the Drug and/or the Product;

         to the extent that QLT is not restricted from providing such access by
         the applicable regulatory authorities or by the terms of any licence
         granted by QLT in respect of the Territory.

(e)      Correspondence. Each party will promptly (and in any event within [*])
         provide the other party with copies of all material correspondence from
         or to the FDA and any other regulatory authorities in the Territory
         concerning the Drug and/or the Product.

4.7      REGULATORY RESPONSIBILITY IN EUROPE

(a)      Responsibility. Xenova shall retain, at Xenova's cost, the exclusive
         right and responsibility to conduct (whether itself or through one or
         more sub-contractors, licensees or other Third Parties) all regulatory
         activities for the development and commercialization of the Drug and
         the Product in the Field in Europe, including the submission of
         applications for Regulatory Approvals for the 


<PAGE>
                                     - 20 -


         Drug and the Product in the Field in Europe, the qualification and
         validation of facilities for the manufacture and processing of the Drug
         and/or the Product and all communication with the EMEA and other
         regulatory authorities regarding such applications and other regulatory
         filings, on the terms and conditions set out in this Agreement.

(b)      QLT Assistance. Notwithstanding Xenova's responsibilities set out in
         Section 4.7(a), QLT agrees that it will, during the Term:

         (i)      cooperate with and assist Xenova or its licensee by reviewing
                  the regulatory filings prepared by Xenova or its licensee for
                  the Drug and/or the Product in the Field in Europe, at QLT's
                  cost (provided that these costs are not unreasonable);

         (ii)     at the request of Xenova, and on reasonable notice,
                  participate with Xenova in any meetings with the EMEA or other
                  European regulatory authorities relating to any Regulatory
                  Approvals for the Drug and/or the Product in the Field, at
                  Xenova's cost; and

         (iii)    provide to Xenova any letters of authorization required to
                  facilitate Xenova's or its licensee's use of or access to any
                  clinical study data and other data generated by or on behalf
                  of QLT for the Drug and/or the Product in the Field for use in
                  supporting any applications for Regulatory Approvals for the
                  Drug and/or the Product in the Field in Europe.

(c)      Access to European Filings. In order for QLT to conduct the Initial
         Development in Europe pursuant to Section 4.2, Xenova hereby grants to
         QLT such access to Xenova's regulatory applications and filings in the
         Field in Europe for the Drug and the Product, including the equivalent
         of the United States of America IND, as may be reasonable and necessary
         or useful for QLT to conduct the Initial Development as contemplated by
         Section 4.2.

(d)      QLT Observer Role. In the event that Xenova does not request QLT's
         participation under Section 4.7(b)(ii), QLT shall have the right to
         participate, at QLT's cost, as an observer:

         (i)      in any material meetings to be held between Xenova and the
                  EMEA or any other regulatory authorities in Europe relating to
                  any Regulatory Approvals for the Drug and/or the Product in
                  the Field,

         (ii)     in any regulatory inspections at manufacturing, clinical and
                  testing sites for the Drug and/or the Product in Europe;

         to the extent that Xenova is not restricted from providing such access
         by the applicable regulatory authorities in Europe or by the terms of
         any licence granted by Xenova in Europe.

(e)      Correspondence. Each party will promptly provide the other party with
         copies of all material correspondence from or to the EMEA or any other
         regulatory authorities in Europe concerning the Drug and/or the
         Product. The Parties do not anticipate that it will be necessary for
         QLT to be in direct contact with the EMEA in relation to the Drug
         and/or Product under applicable laws and regulations or in response to
         any request of the EMEA and QLT shall not do so without Xenova's prior
         written consent, such consent not to be unreasonably withheld or
         delayed.

4.7A     XENOVA AND QLT REVIEW OF REGULATORY FILINGS

Each Party ("PROVIDER") will promptly provide to the other Party ("RECEIVER")
copies of each draft and final copies of any of the following documents that it
may intend to file for the Drug and/or Product in the Development Territory.

(i)      [*]

(ii)     [*]

The Receiver shall provide its comments to the Provider within [*] after receipt
of any drafts thereof, unless the Provider agrees to extend that time thereof.

QLT and Xenova acknowledge that the [*] shall be used in support of Regulatory
Approvals for the Drug and/or Product in the Field in both Europe and the
Territory and QLT will consider incorporating the 


* material has been omitted and filed separately with the Commission

<PAGE>
                                     - 21 -


comments of Xenova in that document where they are determined by QLT to be
appropriate and reasonable. However, QLT shall have no obligation to incorporate
Xenova's comments. In addition, Xenova shall have no obligation to incorporate
QLT's comments in any additional documents submitted by Xenova or its licensees
in support of Regulatory Approvals for the Drug and/or Product in the Field in
Europe.

4.8      ADVERSE EVENT REPORTING

(a)      Definitions. For the purposes of this Section 4.8 "ADVERSE EVENT" shall
         mean any unfavourable and unintended sign (including an abnormal
         laboratory finding), symptom or disease associated with the
         administration of a medicinal product whether or not considered related
         to the Drug and/or Product.

(b)      Reporting. During the Term, each party shall, and shall use
         commercially reasonable efforts to cause its respective licensees and
         sub-licensees to, promptly notify the other party as soon as
         practicable (subject to the following provisions of this paragraph (b))
         of:

         (i)      any information that it obtains or develops regarding the
                  efficacy or safety of the Drug and/or the Product, that is
                  required for, and which shall be made available for, the
                  annual update of the IND or CTX or any periodic post marketing
                  safety reporting which is required to be made to the
                  applicable regulatory authorities with whom the IND, CTX or
                  Marketing Application is filed;

         (ii)     any findings associated with the use of the Drug and/or the
                  Product that may suggest significant hazards, significant
                  contraindications, significant side effects or significant
                  precautions pertinent to the safety of the Drug and/or the
                  Product;

         (iii)    any information concerning any Adverse Event.

         Upon receipt of any such findings or information, each party shall
         provide the other party with reasonable cooperation to help the other
         party investigate the Adverse Events. The parties agree to exchange
         Adverse Event reports in a manner and time frame that will allow either
         party to comply with regulatory reporting requirements, including any
         requirements of the Act and regulations promulgated thereunder (and, if
         applicable, the ICH Guidelines), and to pursue an ongoing safety review
         of the Drug and/or the Product. The parties will agree in writing upon
         standard operating procedures for the reporting of Adverse Events to
         regulatory authorities and to each other, which standard operating
         procedures shall include the [*].

(c)      Third Party Reporting. Each party also agrees that if it contracts with
         a Third Party for research to be performed by such Third Party on the
         Drug and/or Product, that party agrees to require such Third Party to
         report to the contracting party the information set forth in clauses
         (b)(i) through (b)(ii) above, and such contracting party shall provide
         this information to the other party.

(d)      Information Confidential. Except as otherwise required by the
         provisions of this Agreement or as required by law or regulation, each
         party to hold all information disclosed to it under this Section 4.8 as
         Confidential Information under Article 7 and neither party may use the
         information received from the other without the consent of the
         disclosing party.

4.9      PERSONNEL

In connection with the Program, each of Xenova and QLT will make available
appropriate scientific, clinical, regulatory, manufacturing, engineering,
executive and other personnel to perform their respective activities under the
Program. 

4.10     XENOVA CONTRIBUTION

(a)      As its contribution to the cost of the Program, Xenova shall [*].

(b)      In the event that this Agreement is terminated due to Xenova's breach
         under Section 16.3(d) or Xenova's default under Section 16.5 prior to
         Xenova [*].


* material has been omitted and filed separately with the Commission

<PAGE>
                                     - 22 -


                  ARTICLE 5 - COMMERCIALIZATION AND MARKETING

5.1      GRANT OF RIGHTS

Xenova hereby grants to QLT the exclusive right and QLT shall have the
responsibility, at QLT's cost, for the commercialization, marketing and sale of
the Drug and/or the Product in the Field in the Territory, on and subject to the
terms and conditions set out in this Agreement (including Section 8.4).

5.2      COMMERCIALIZATION DILIGENCE

(a)      General Statement. QLT shall work diligently and utilize sound and
         reasonable scientific, business and medical practice and judgement in
         the commercialization, marketing and sale of the Product to maximize
         the overall commercial potential of the Product in the Field in the
         Territory as a whole, subject to Section 5.2(b).

(b)      Clarification. For greater certainty, Xenova acknowledges and agrees
         that QLT will not be obligated under Section 5.2(a) to make application
         for Regulatory Approvals for the Drug or the Product or seek Commercial
         Launch of the Product in [*], if doing so would have an adverse effect
         on the maximization of Net Sales in the Territory as a whole. If the
         parties disagree whether the making of application(s) for Regulatory
         Approvals for the Drug or the Product or Commercial Launch of the
         Product in [*] would have an adverse effect on the maximization of Net
         Sales in the Territory as a whole, either party may refer the dispute
         to expedited arbitration under Section 17.2. If, under Section 17.2, an
         arbitrator determines that the making of application(s) or Regulatory
         Approvals for the Drug or the Product or Commercial Launch of the
         Product in [*] would not adversely affect the maximization of Net Sales
         in the Territory as a whole, QLT shall:

         (i)      promptly make application for Regulatory Approvals for the
                  Drug and the Product in such countr(ies), if not already
                  pending; and

         (ii)     achieve Commercial Launch of the Product in such countr(ies)
                  within [*].

         If QLT fails to achieve Commercial Launch of the Product in [*]within
         the [*] period set out in Section 5.2(b)(ii), Xenova may, within [*]
         period, by written notice delivered to QLT immediately delete the
         countr(ies) from the Territory and this Agreement shall be deemed to be
         amended accordingly. QLT's rights and obligations in respect of any
         countr(ies) deleted from the Territory shall be governed by Section
         16.7, except that no royalty shall be payable under Section 16.7(f) .

(c)      Review of Commercialization Activities. If, at any time during the
         Term, Xenova reasonably believes that QLT has without legitimate reason
         failed to discharge its obligations under Section 5.2(a), Xenova may
         refer the following questions to expedited arbitration under Section
         17.2:

         (i)      whether QLT has discharged its obligations under Section
                  5.2(a); and

         (ii)     if QLT has not discharged its obligations under Section
                  5.2(a), what specific action would be required to achieve
                  compliance with its obligations under Section 5.2(a)
                  ("SPECIFIC ACTION").

         If, under Section 17.2, an arbitrator determines that that QLT has
         failed to discharge its obligations under Section 5.2(a) and provides
         QLT with Specific Action, QLT shall have a cure period of [*] following
         the arbitral decision during which to take the Specific Action. If QLT
         fails to take the Specific Action within the [*] cure period, Xenova
         may, by written notice delivered to QLT within [*] following the
         expiration of the [*] cure period, immediately terminate this
         Agreement. Termination by Xenova under this Section 5.2(c) shall be
         deemed to be termination by Xenova for material breach by QLT under
         Section 16.4, provided that QLT shall not have any further opportunity
         to cure or commence the cure of such breach as described in that
         Section 16.4 and no royalty shall be payable under Section 16.7(f).

5.3      MARKETING DILIGENCE

(a)      Marketing Plans. Without limiting the generality of Section 5.2, QLT
         shall provide to Xenova at least annually an updated Marketing Plan on
         or before [*] of each year during the Term, 


* material has been omitted and filed separately with the Commission

<PAGE>
                                     - 23 -


         commencing in the year [*]. QLT may, in its sole discretion, from time
         to time and at any time update and amend the then current Marketing
         Plan (including amendments to the Marketing Plan made by separate
         memoranda or reports identifying changes made by QLT to the Marketing
         Plan) using sound and reasonable scientific, business, medical and
         marketing practice and judgement, taking into account the commercial
         prospects for the sale of the Finished Product in those countries where
         QLT has achieved or is intending to achieve Commercial Launch. Xenova
         may provide written comments to QLT regarding the Marketing Plan,
         provided that any such comments or lack thereof, or the receipt of the
         Marketing Plan, shall not be taken as Xenova's acquiescence as to the
         sufficiency of the activities set out therein or as a waiver of QLT's
         obligations under Section 5.2 nor will QLT be under any obligation to
         incorporate such comments.

(b)      Definition of Marketing Default. For the purposes of this Section 5.3,
         a "MARKETING DEFAULT" by QLT in the marketing of the Product in the
         Field in the Territory shall mean:

         (i)      [*], provided that there has not been a significant change in
                  oncology marketing practices in the pharmaceutical industry in
                  the Territory, the failure of QLT or its permitted
                  sub-licensees to promptly commence and actively pursue:

                  (A)      [*] promptly after the receipt of the [*] data from
                           the [*];

                  (B)      [*] promptly after the first [*];

                  (C)      [*] promptly after the [*]; and

         (ii)     [*], provided that there has not been a significant change in
                  oncology marketing practices in the pharmaceutical industry in
                  the Territory, the occurrence of any of the following events:

                  (A)      the failure of QLT or its permitted sub-licensees to
                           [*] following the receipt of the [*];

                  (B)      the failure of QLT to [*];

                  (C)      the failure of QLT to [*] provided for in the [*],
                           within the [*] set out therefor in the[*] ; or

                  (D)      subject to the outcome of expedited arbitration under
                           Section 5.3(c), if any, Xenova otherwise reasonably
                           considers that QLT has not worked diligently and
                           utilized sound and reasonable scientific, business
                           and medical practice and judgement in its marketing
                           of the Finished Product in the Field as appropriate
                           in the Territory.

(c)      Marketing Default Notice. If, at any time during the Term, Xenova
         reasonably considers that QLT has without legitimate reason committed a
         Marketing Default, Xenova may provide written notice thereof to QLT
         stating that it wishes to exercise the co-promotion and manufacturing
         rights set out in Section 5.3(d) (the "MARKETING DEFAULT NOTICE"). If
         there is any disagreement between the parties as to whether QLT has
         committed a Marketing Default, either party may refer the question to
         expedited arbitration under Section 17.2. Subject to the outcome of
         expedited arbitration hereunder, if any, Xenova may assume the
         co-promotion and manufacturing rights more specifically set out in
         Section 5.3(d).

(d)      Consequences of Marketing Default. In the event that QLT has committed
         an uncured Marketing Default, subject to confirmation by expedited
         arbitration, if any, Xenova shall have the right, either alone or
         through any licensees or sub-contractors, to:

         (i)      co-promote and sell, [*], the Product in the Field in the
                  Territory with QLT; and

         (ii)     manufacture and supply the Drug and the Product for sale of
                  the Product in the Field in the Territory;

         provided that the parties agree that if Xenova exercises its rights
         hereunder, they will reasonably negotiate revised financial terms under
         this Agreement, including, without limitation, the assignment of duties
         and the allocation of costs for Xenova's co-promotion and manufacturing


* material has been omitted and filed separately with the Commission

<PAGE>
                                     - 24 -


         activities, revisions to the amount of royalties payable by QLT and the
         allocation of costs and revenues. If the parties are not able to reach
         agreement on the revised financial terms within 45 days after the later
         of the delivery of the Marketing Default Notice by Xenova to QLT and
         the confirmation by expedited arbitration of the occurrence of a
         Marketing Default by QLT, if any, the matter shall immediately be
         submitted to expedited arbitration under Section 17.2.

(e)      Sole Remedy. Xenova's sole remedy for any Marketing Default by QLT in
         respect of which Xenova has served a Marketing Default Notice on QLT,
         shall be limited to the exercise of the co-promotion and manufacturing
         rights set out in Section 5.3(d).

5.4      ARBITRATION RIGHTS ALTERNATIVE NOT CUMULATIVE

Notwithstanding Section 17.17, the parties acknowledge and agree that the right
to refer a claim to arbitration under Sections 5.2 and 5.3 shall be alternative
and not cumulative with respect to the same or substantially the same set of
facts or circumstances, but not any subsequent occurrence of such facts and
circumstances.

5.5      COMMERCIALIZATION BY XENOVA

(a)      General. Xenova shall work diligently and utilize sound and reasonable
         scientific, business and medical practice and judgement in:

         (i)      the commercialization of the Product in the Field as
                  appropriate outside the Territory; and

         (ii)     the commercialization of the ODD Product in the ODD Field as
                  appropriate in the Territory.

(b)      Sub-License Revenues. Xenova agrees that in establishing any
         relationships for the marketing and distribution of the Product in the
         Field in any country outside the Territory or the marketing and
         distribution of the ODD Product in the ODD Field world-wide, whether
         alone or through any licensees or sub-contractors, it will not use
         unusual efforts in structuring such marketing and distribution
         relationships in ways that are uncommon to the pharmaceutical industry
         and that would have the effect of reducing Xenova's Net Proceeds or
         reducing or avoiding post-commercialization payments due and payable to
         QLT under this Agreement.

     ARTICLE 6 - ACTIVITIES, NON-COMPETITION, GLOBAL FRANCHISE AND FURTHER
                                 OPPORTUNITIES

6.1      XENOVA ACTIVITIES

The parties acknowledge that, subject to the provisions and restrictions set out
in this Article 6, contemporaneously with the Program Xenova may enter into
agreements with Third Parties in respect of any Xenova Independent Program and
may be conducting activities (provided that Xenova complies with its obligations
under this Agreement applicable to such activities) relating to: 

(a)      development and/or commercialization of the Drug outside the Field,
         anywhere, world-wide;

(b)      development of the Drug inside the Field and outside the Development
         Territory; or

(c)      commercialization of the Drug inside the Field and outside the
         Territory.

6.2      XENOVA ACTIVITIES IN THE [*] IN THE TERRITORY

Xenova will not, and will ensure that its Affiliates do not, whether directly or
indirectly, undertake any development or commercialization activities with
respect to the Drug in the [*] in the Territory, except as permitted under this
Agreement; provided that the restriction set out in this Section 6.2 shall not
apply to development and commercialization activities undertaken by Xenova or
its Affiliates with respect to the [*]. 


* material has been omitted and filed separately with the Commission

<PAGE>
                                     - 25 -


6.3      NO OTHER XENOVA ACTIVITIES DURING THE [*]

For the purpose of protecting the development of the Drug and/or the Product in
the Field in the Development Territory, Xenova agrees that for a period of
[*]after the Effective Date, Xenova will not, and will ensure that its
Affiliates and licensees do not, without the prior written consent of QLT, such
consent not to be unreasonably withheld or delayed, either alone or in
partnership or in conjunction with any Person, whether as principal, agent,
employee, director, officer or shareholder or in any capacity or manner, whether
directly or indirectly, participate in any [*]development activities [*] with
respect to:

(a)      the Drug and/or the Product for use in the [*] outside the [*]; and/or

(b)      the Drug and/or the Product for use outside the [*], provided that the
         restrictions set out in this Section 6.3(b) shall not apply to
         development activities in the ODD Field, anywhere, world-wide, or any
         ODD activities outside the Field.

6.4      RECIPROCAL NON-COMPETE

During the Term, each of QLT and Xenova will not, and will ensure that their
respective Affiliates do not, either alone or in partnership or in conjunction
with any Person, whether as principal, agent, employee, director, officer or
shareholder or in any capacity or manner whatsoever, whether directly or
indirectly, participate in any material development or commercialization
activities in the Territory with respect to any [*]for use in oncology, other
than the Drug or the Product.

6.5      GLOBAL FRANCHISE

The parties acknowledge that in the development and commercialization of the
Product in the Field in their respective territories, the parties will endeavour
to maximize the overall global potential of the Product in the Field and will
endeavour to ensure that any licenses, sub-licenses or other contracts with any
Person entered into by the parties with respect to the Drug and/or the Product
in the Field will also have this same goal of maximization of the overall global
franchise for the Product in the Field. 

6.6      NOTICE AND DISCUSSION OF OTHER OPPORTUNITIES

If Xenova intends at any time after the Effective Date to develop the Drug
and/or the Product outside the Field, either alone or in partnership or in
conjunction with any Person, it will give written notice of this intention to
QLT and discuss with QLT the possibility of a relationship with QLT for this
additional development and use of the Drug or the Product. 

6.7      CROSS-OVER USE AND CROSS-PRICING PROTECTION

Except as set out in Section 6.3 and this Section 6.7, and subject to compliance
with Section 6.6, Xenova shall be free to pursue development and
commercialization opportunities for the Drug and/or the Product outside the
Field, either alone or in partnership or in conjunction with any Person, and
including through licensees or sub-licensees ("XENOVA PARTNER"), it being
intended that any such development and commercialization shall not result in or
otherwise cause Cross-Over Use or Cross-Pricing Risk. Xenova agrees that it
shall be a term of any such agreement with the Xenova Partner that the Xenova
Partner will comply with the provisions of this Section 6.7. Where either party
in good faith believes that any such development and commercialization
opportunity, whether actual or proposed, has resulted in or caused, or could
reasonably be expected to result in or cause, Cross-Over Use or Cross-Pricing
Risk, the parties agree to enter into discussions aimed at preventing or
otherwise mitigating, in a mutually-acceptable manner, the risk of any
Cross-Over Use or Cross-Pricing Risk resulting from the development and
commercialization opportunity. If the parties disagree as to whether there
exists any actual or potential Cross-Over Use or Cross Pricing Risk, or they
disagree on the measures required to prevent or otherwise mitigate the risk of
Cross-Over Use or Cross-Pricing Risk, then:

(a)      [*]

(b)      [*]


* material has been omitted and filed separately with the Commission

<PAGE>
                                     - 26 -


6.8      CONSEQUENCES OF ARBITRATION


If any arbitral decision under Section 6.7(a) includes a determination that the
additional development and commercialization opportunity does result in or
cause, or could reasonably be expected to result in or cause, Cross-Over Use or
Cross-Pricing Risk, as the case may be, Xenova shall not, and shall cause any
Person with whom Xenova Partners not to, commence or cease pursuing or not
pursue, as the case may be, the additional development and commercialization
opportunity that is the subject of the arbitration. 

               ARTICLE 7 - CONFIDENTIALITY AND USE OF INFORMATION

7.1 OWNERSHIP OF CONFIDENTIAL INFORMATION

(a)      All Confidential Information disclosed by one party to the other shall
         remain the property of the disclosing party.

(b)      In the event that a court or other legal or administrative tribunal,
         directly or through an appointed master, trustee or receiver, assumes
         partial or complete control over the assets of a party to this
         Agreement based on the insolvency or bankruptcy of the party, the
         bankrupt or insolvent party shall promptly notify the court, other
         tribunal or appointee:

         (i)      that Confidential Information received from the other party
                  under this Agreement remains the property of the other party;
                  and

         (ii)     of the confidentiality obligations under this Agreement.

         In addition, the bankrupt or insolvent party shall, to the extent
         permitted by law, take all steps necessary or desirable to maintain the
         confidentiality of the other party's Confidential Information and to
         ensure that the court, other tribunal or appointee maintains the
         information in confidence in accordance with the terms of this
         Agreement.

7.2      OBLIGATION OF CONFIDENTIALITY

Except as otherwise agreed in writing by Xenova and QLT, each party will, for
the Term and for 10 years after its expiration or termination for any reason, in
respect of all Confidential Information of the other party and all Program
Information owned by the other party:

(a)      maintain such Confidential Information and Program Information in
         strict confidence and not to disclose any portion of such Confidential
         Information or Program Information to any Person, without the prior
         written consent of the disclosing party, other than to its legal
         counsel, accountants, employees and consultants who are bound by
         obligations of confidentiality and non-use in connection therewith at
         least as stringent as those set forth in this Agreement, provided that
         each party shall remain responsible for the actions, uses and
         disclosures of its legal counsel, accountants, employees and
         consultants; and

(b)      not use such Confidential Information or Program Information for any
         purpose other than the development and/or commercialization of the Drug
         and/or the Product (including performance of the Program) under this
         Agreement, or as otherwise permitted under this Agreement, without the
         prior written consent of the disclosing party; and

(c)      take reasonable measures to assure that no unauthorized use or
         disclosure is made by others to whom access to such Confidential
         Information and Program Information is granted.

Nothing herein shall be construed as preventing either party from disclosing any
Confidential Information or Program Information:

(d)      Required for Regulatory Filings. to government agencies where such
         information is required to be included in regulatory filings permitted
         under the terms of this Agreement;

(e)      Under Confidentiality. to its Affiliates or to Third Parties for
         consulting, development, clinical and analytical testing,
         manufacturing, marketing, distribution and other purposes for the
         development and commercialization of the Product under this Agreement,
         including such activities under the 


<PAGE>
                                     - 27 -


         Program, provided that such Affiliate or Third Party has undertaken in
         writing an obligation of confidentiality and non-use with respect to
         the Confidential Information and Program information similar to that
         set out in this Agreement;

(f)      Published if Approved. by publication in accordance with Section 7.7;
         or

(g)      Required by Law. to the extent required by applicable laws or
         regulations or as ordered by a court or other regulatory body having
         competent jurisdiction.

In each of the foregoing cases, the receiving party will use diligent efforts to
limit the disclosure and maintain confidentiality to the extent possible and to
promptly inform the disclosing party of any intended or actual disclosure in
order to allow the disclosing party to seek protective treatment, as the case
may be.

7.3      XENOVA USE OF QLT PROGRAM INFORMATION

Subject to Sections 6.7 and 7.6, QLT shall provide to Xenova, from time to time
(i) annually, a general update on QLT's Program Information, whether or not
Xenova has requested it, and (ii) detailed Program Information as reasonably
requested by Xenova, and Xenova shall have the right to use and cross-reference,
whether alone or through any licensees or other Persons, all of QLT's Program
Information, including:

(a)      QLT's regulatory filings and clinical data (including Phase IV data)
         for the Drug and the Product; and 

(b)      any other data which would reasonably be expected to enable Xenova to
         increase its Net Proceeds from commercialization of the Drug and/or the
         Product outside the Territory;

for the sole purpose of developing and/or commercializing the Drug and/or the
Product:

(c)      inside the Field but outside the Territory (subject to QLT's exclusive
         development rights in the Development Territory under Article 4, for as
         long as those rights continue); and/or (d) outside the Field (excluding
         the ODD Field), anywhere, world-wide.

Xenova shall provide compensation to QLT for the foregoing right to use QLT's
Program Information in accordance with Section 10.6.

7.4      QLT USE OF XENOVA PROGRAM INFORMATION

Subject to Section 7.5, except to the extent that Xenova is restricted by any
Third Party agreements in respect of any Xenova Independent Program Information,
QLT shall have the right to use and to cross-reference, whether alone or through
any licensees or subcontractors, all of Xenova's Program Information and Xenova
shall provide to QLT, from time to time (i) annually, a general update on
Xenova's Program Information, whether or not QLT has requested it, and (ii)
detailed Program Information as reasonably requested by QLT from time-to-time,
including:

(a)      Xenova's regulatory filings and clinical data (including Phase IV data)
         for the Drug and/or the Product; and

(b)      Available Xenova Independent Program Information;

for the purpose of developing and/or commercializing the Drug and/or the Product
in the Field in the Territory. 

7.5 THIRD PARTY ACCESS

Each of QLT and Xenova will use reasonable endeavours to ensure that any Person
with whom it contracts for the performance of any activities relating to the
development or commercialization of the Drug and/or the Product, whether under
the Program or under any Xenova Independent Program, will allow QLT or Xenova,
as the case may be, to use and share with the Development Committee as
contemplated in Section 2.2 and with the other party as contemplated by Sections
4.5, 7.3 and 7.4, all Information generated by such Person during the course of
such activities. QLT and Xenova shall use 



<PAGE>
                                     - 28 -


reasonable endeavours to ensure that any written agreement with any such Person
shall include provisions allowing such use and sharing of Information.


[*]

7.6      NO USE OF QLT PROGRAM INFORMATION FOR ODD

Notwithstanding any provision of this Agreement, and in recognition of the
rights reserved to Xenova for the ODD Field under this Agreement, QLT shall have
no obligation to provide to Xenova, nor shall Xenova have any right of access to
or right to use or cross-reference, whether alone or through any licensees, any
of QLT's Program Information to develop and/or commercialize the Drug and/or the
ODD Product in the ODD Field, whether such Program information is received from
QLT or any other Person, including: 

(a)      QLT's regulatory filings and clinical data (including Phase IV data)
         for the Drug and/or the Product; and

(b)      any other data which would enable Xenova to increase its Net Proceeds
         from commercialization of the Drug and/or the Product outside the
         Territory.

However, the provisions of this Section 7.6 shall not entitle QLT to withhold
from Xenova any QLT Program Information, including QLT's regulatory filings and
clinical data (including Phase IV data) for the Drug and/or the Product which,
in the absence of this Section 7.6, QLT would be obligated to provide to Xenova
under this Agreement and which Xenova requires for the purpose of developing
and/or commercializing the Drug and/or the Product in the fields and territories
referenced in Section 7.3. 

7.7      PUBLICATIONS

(a)      Neither party shall publish or provide public disclosure of any
         Information or Improvements relating to the Drug and/or the Product in
         the Field except in accordance with this Section 7.7 (except that the
         issuing of press releases relating to the Drug and/or Product in the
         Field shall be governed by Section 17.15 and not by this Section 7.7).

(b)      A party proposing to publish, present or make oral public disclosure of
         any Information or Improvements relating to the Drug and/or the Product
         in the Field (in this Section 7.7, the "PRESENTING PARTY") shall
         furnish a copy of the proposed manuscript to the other party (in this
         Section 7.7, the "REVIEWING PARTY") at least [*] prior to submission
         for publication or presentation or the date of oral public disclosure,
         as the case may be, except for disclosures required by securities
         regulatory authorities pursuant to Section 7.2(d). The Reviewing Party
         shall return materials provided by the Presenting Party pursuant to
         this Section 7.7 within [*] thereafter. The Parties anticipate that the
         furnishing of copies and comments under this Section 7.7 may, in
         practice, be conducted through the Development Committee; however, any
         decision-making on publications shall be governed by the provisions of
         this Section 7.7 and not by the provisions of Section 2.2.

(c)      The Reviewing Party shall provide to the Presenting Party, without
         undue delay, its comments on or proposed changes to the proposed
         manuscript. If the proposed manuscript is not acceptable to the
         Reviewing Party, the parties shall discuss and agree upon the final
         wording and/or disposition thereof.

(d)      The parties shall use commercially reasonable efforts to cooperate and
         give due regard to the parties' legitimate interests in the Drug and/or
         the Product and to ensure that no rights of the Reviewing Party are
         jeopardized or forfeited by the proposed publication, presentation or
         oral public disclosure, including, without limitation, obtaining
         optimal patent protection, coordinating and maintaining the proprietary
         nature of submissions for Regulatory Approvals, coordinating with other
         ongoing studies in the same field and protecting the confidentiality of
         Confidential Information and Program Information.

(e)      Without limiting the generality of the foregoing, the Reviewing Party
         may, by written notice to the Presenting Party, have the right to delay
         publication, presentation or oral public disclosure of any proposed
         manuscript for a period of [*] to obtain patent protection or until any
         patent applications 


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 29 -


         have been filed, whichever shall first occur. Upon expiration of the
         [*] period, the Presenting Party may submit the manuscript for
         publication with the wording agreed upon by the parties. The filing of
         patent applications shall be governed by Sections 13.1 and 13.2.

(f)      Nothing in this Section 7.7 shall be construed in any way as
         prohibiting either party from making truthful disclosures arising from
         the results of the Program or any other development activities under
         this Agreement, once compliance with the foregoing procedures is
         observed. For greater certainty, nothing in this Section 7.7 shall
         require a Party to utilize greater than commercially reasonable efforts
         to impose obligations on any Third Party (as between that Party and any
         Third Party), including any licensee, investigator or manufacturer
         appointed by such Party, in relation to any publication or public
         disclosure of any Information or Improvements of the Third Party
         relating to the Drug and/or Product in the Field.

7.8      ACKNOWLEDGEMENT OF PRIOR DISCLOSURES

The parties hereby acknowledge and agree that, in respect of all Confidential
Information relating to the Drug and/or the Product, the provisions of the
Confidentiality Agreement are superseded by the provisions of this Article 7 and
all "Confidential Information" relating to the Drug and/or Product disclosed
under the Confidentiality Agreement, as defined therein, shall be Confidential
Information under this Agreement and shall be subject to a continuing obligation
of confidentiality as set out in this Article 7. In respect of all other
Confidential Information under the Confidentiality Agreement, the
Confidentiality Agreement shall continue in full force and effect.

7.9      RETURN OF CONFIDENTIAL INFORMATION

Upon the early termination of this Agreement, unless otherwise required to
exercise the grants of license set out in Sections 16.7 and 16.8 or as otherwise
agreed between the parties, each party shall: 

(a)      promptly cease all use of the Confidential Information of the other
         party and the Program Information of the other party and ensure that
         its employees cease all use thereof and use reasonable efforts to
         ensure that its corporate counsel, accountants and consultants cease
         all use thereof; and

(b)      upon written request of the other party,

         (i)      return to the other party all original copies of the
                  Confidential Information of the other party and the Program
                  Information of the other party in its control or possession;
                  and

         (ii)     destroy any and all copies or other reproductions or extracts
                  of the Confidential Information of the other party and the
                  Program Information of the other party and all summaries,
                  abstracts, extracts, computer files, memoranda, notes or other
                  documents which contain or were prepared based on such
                  Confidential Information and Program Information of the other
                  party;

subject to the retention of one complete copy for archival and/or regulatory or
legal purposes. If a party requests destruction of its Confidential Information,
the other party shall document the destruction of the Confidential Information
and shall provide a copy of this documentation to the requesting party.

       ARTICLE 8 - INTELLECTUAL PROPERTY; ADDITIONAL TECHNOLOGY; LICENSES

8.1      OWNERSHIP OF INTELLECTUAL PROPERTY

As between QLT and Xenova:

(a)      title to and ownership of all rights in and to all Intellectual
         Property owned by QLT or licensed to QLT by Third Parties as of the
         Effective Date shall at all times remain with QLT and, except as
         expressly granted under this Agreement, no rights in or to any such
         Intellectual Property shall vest in Xenova; and


           * Material has been omitted and filed with the Commission


<PAGE>
                                     - 30 -


(b)      title to and ownership of all rights in and to all Intellectual
         Property owned by Xenova or licensed to Xenova by Third Parties as of
         the Effective Date shall at all times remain with Xenova and, except as
         expressly granted under this Agreement, no rights in or to any such
         Intellectual Property shall vest in QLT.

8.2      OWNERSHIP OF PROGRAM INFORMATION

Subject to the licenses granted under this Agreement, the parties agree that all
Program Information will be owned as follows: 

(a)      subject to Section 8.2(c), all Program Information related solely to
         the Drug itself, or the manufacture or use of the Drug itself, but
         excluding Program Information generated by or on behalf of QLT and
         relating to marketing strategies, plans and reports, will be solely
         owned by Xenova, and

         (i)      QLT will assign to Xenova all right, title and interest it may
                  have in and to such Program Information, and

         (ii)     upon such assignment, such Program Information will be
                  automatically included in the exclusive license granted by
                  Xenova to QLT under Section 8.4;

(b)      all Available Xenova Independent Program Information, as between Xenova
         and QLT, will be solely owned by Xenova;

(c)      notwithstanding Section 8.2(a), any Program Information generated,
         developed or acquired, whether solely or jointly with any Third Party,
         by QLT under the Interim Agreement and this Agreement comprising
         manufacturing processes having application to the Drug and/or the
         Product, as between Xenova and QLT will be solely owned by QLT, and:

         (i)      Xenova will assign to QLT all right, title and interest it may
                  have in and to such Program Information, and

         (ii)     upon such assignment:

                  (A)      if the manufacturing processes do not have
                           application beyond the Drug and/or the Product, the
                           Program Information will be included in the exclusive
                           license granted by QLT to Xenova under Section
                           8.5(a), or

                  (B)      if the manufacturing processes do have application
                           beyond the Drug and/or the Product, paragraph (A)
                           above shall apply to the extent that it relates to
                           the Drug and/or Product and in addition QLT will
                           grant to Xenova a non-exclusive license on the terms
                           and conditions set out in Section 8.5(b); and

(d)      all other Program Information:

         (i)      if solely created by a party, will be solely owned by the
                  party that created it, and will be automatically included in
                  the exclusive licenses granted by each party to the other
                  party under Sections 8.4 and 8.5(a); or

         (ii)     if jointly created by Xenova and QLT, will be jointly owned by
                  Xenova and QLT, and in respect of Xenova's joint interest in
                  such Program Information, will be automatically included in
                  the exclusive license granted by Xenova to QLT under Section
                  8.4. QLT's joint interest in such Program Information will be
                  automatically included in the licenses granted by QLT to
                  Xenova under Section 8.5.

8.3      ADDITIONAL TECHNOLOGY

(a)      If at any time during the Term, QLT and/or Xenova reasonably determine
         that any technology controlled by a Third Party ("ADDITIONAL
         TECHNOLOGY") may be necessary or useful for the development or
         commercialization of the Drug and/or the Product in the Field in any
         country of the world, QLT or Xenova, as appropriate, shall present such
         Additional Technology, along with a written report with respect
         thereto, to the Development Committee (or in the event that the
         


<PAGE>
                                     - 31 -


         Development Committee has been dissolved, to the other party), which
         shall then consider the acquisition or licensing of the Additional
         Technology, but the Development Committee shall have no power to
         require either party to enter into any agreement, or have any financial
         or other commitments, with respect to any Additional Technology.

(b)      In the case of Additional Technology that may be necessary or useful in
         the Field, the Development Committee (or in the event that the
         Development Committee has been dissolved, the parties) shall then
         determine, whether licenses to, and/or acquisitions of, such Additional
         Technology are desirable, and what recommendations to make to the
         parties as to which party shall approach and negotiate with the Third
         Party.

(c)      In negotiating any agreements for the licensing or acquisition of
         Additional Technology under this Section 8.3, the party conducting such
         negotiations shall, on an ongoing basis throughout such negotiations,
         consult with the other party to ensure that the scope of the
         Intellectual Property rights licensed or otherwise acquired are
         adequate for the uses contemplated by the other party for the
         Additional Technology. The parties intend that each party shall be
         licensed in respect of its territory directly by the licensing party.

(d)      The costs of licensing or otherwise acquiring any Additional Technology
         under this Section 8.3 shall be borne, on a territory-by-territory and
         field-by-field basis, by the party that has rights in that territory
         and field in respect of Drug and/or Product.

(e)      In the absence of agreement to proceed with the licensing or
         acquisition of any Additional Technology hereunder, nothing in this
         Section 8.3 shall be deemed to preclude either party from licensing
         and/or acquiring such Additional Technology for its own benefit.

8.4      LICENSE TO QLT

(a)      Grant of License. Xenova hereby grants to QLT an exclusive
         royalty-bearing license:

         (i)      to use the Drug and/or the Product in the Field for the
                  purpose of conducting research and development of the Drug
                  and/or the Product in the Field in the Territory and (for as
                  long as QLT is responsible for Initial Development and to the
                  extent necessary for Initial Development) in Europe;

         (ii)     to sell, have sold, offer for sale, export (from one part of
                  the Territory to another) or import the Drug and/or the
                  Product in the Field in the Territory and to use the Drug
                  and/or Product for those purposes; and

         (iii)    to make, have made, export or import the Drug and/or the
                  Product, anywhere, world-wide for the purpose of exercising
                  the rights granted under Sections 8.4(a)(i) and 8.4(a)(ii);

         under the Xenova Patents and such Program Information as may be now or
         hereafter owned or controlled by Xenova during the Term as may be
         necessary or useful for such purposes, all on the terms and conditions
         set out in this Agreement. For greater certainty:

         (iv)     the license granted to QLT under Sections 4.1 and 8.4(a)(i):

                  (A)      shall be exclusive in the Field in the Development
                           Territory for the purpose referred to in those
                           Sections, to the exclusion of Xenova and all other
                           Persons, and

                  (B)      shall be subject to the reduction in the geographic
                           scope of the Development Territory, as provided in
                           Section 4.2(b); and 

         (v)      the license granted to QLT under Section 8.4(a)(ii) shall be
                  exclusive in the Field in the Territory for the purpose
                  referred to in that Section, to the exclusion of Xenova and
                  all other Persons,

         all on and subject to the terms and conditions set out in this
         Agreement.

         Nothing in this Agreement shall prevent Xenova from making application
         for, prosecuting or maintaining any Patents in respect of patentable
         Intellectual Property owned by Xenova, including 



<PAGE>
                                     - 32 -


         the Xenova Patents; or entering into agreements with Third Parties in
         respect of any Xenova Independent Program.

(b)      No right to Sub-License Development. QLT shall not have the right to
         sub-license the research and development rights granted under Section
         8.4(a)(i) above, provided that notwithstanding the foregoing, QLT may
         sub-contract any of its research and development activities to any
         Person upon notice to Xenova.

(c)      Sub-License Marketing. If QLT wishes to sub-license the rights granted
         under Section 8.4(a)(ii) to any Person, the following provisions shall
         apply:

         (i)      QLT shall first give written notice to Xenova of any intention
                  to sub-license such rights;

         (ii)     [*] and

         (iii)    QLT may only sub-license its rights under Section 8.4(a)(ii)
                  to a Third Party if it shall have received the consent of
                  Xenova with respect to the proposed sub-license, which consent
                  shall not be unreasonably withheld or delayed. The criteria to
                  be considered by Xenova when determining whether to give such
                  consent shall include whether the proposed sub-licensee:

                  (A)      is appropriately qualified, experienced and competent
                           in oncology marketing for the area of the Territory
                           proposed to be sublicensed, and

                  (B)      has the necessary resources to carry out the proposed
                           activities in such area.

         If there is any disagreement between the parties in relation to the
         withholding of Xenova's consent under this section, either party may
         refer the disagreement to expedited arbitration under Section 17.2.

(d)      Sub-License Manufacturing. QLT may only sub-license the rights granted
         under Section 8.4(a)(iii) to any Person if QLT shall have received the
         consent of Xenova with respect to the proposed sub-license, which
         consent shall not be unreasonably withheld or delayed. The criteria to
         be considered by Xenova when determining whether to give such consent
         shall include whether the proposed sub-licensee:

         (i)      is appropriately qualified and has been approved by the
                  relevant health regulatory body for the area of the Territory
                  where the Drug and/or Product is proposed to be sold,

         (ii)     is competent to manufacture and process the Drug and/or the
                  Product (as the case may be) to an appropriate manufacturing
                  quality; and

         (iii)    has the production capacity to manufacture and process the
                  Drug and/or the Product (as the case may be).

         If there is any disagreement between the parties in relation to the
         withholding Xenova's consent under this section, either party may refer
         the matter to expedited arbitration under Section 17.2.

(e)      Requirements for Sub-License Agreements. All sublicenses granted by QLT
         under this Agreement shall:

         (i)      be in writing executed by QLT and the sub-licensee;

         (ii)     not relieve QLT of any obligations, whether financial or
                  otherwise, under this Agreement and QLT shall make all
                  required payments to Xenova as if the sublicensed activities
                  were conducted by QLT; and

         (iii)    contain [*] substantially similar to those contained in this
                  Agreement, which provisions shall allow [*] by Xenova and its
                  representatives as if the sub-licensee had contracted directly
                  with Xenova.

(f)      Compulsory Sub-licenses. Notwithstanding Section 8.4(e), if at any time
         in any country in the Territory, QLT is required pursuant to an order
         issued by a competent government authority or 

           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 33 -


         other applicable law to grant to a government entity or other Third
         Party a compulsory sub-license to manufacture, use or sell the Drug
         and/or the Product, [*]

(g)      Copies of Sub-Licenses. On request of Xenova, QLT will provide to
         Xenova a copy of each sublicense agreement entered into by it under
         this Agreement.

8.5      LICENSE TO XENOVA

(a)      Grant of Exclusive License. Subject to Sections 7.6, 8.5(b), 8.5(c) and
         8.5(d), QLT hereby grants to Xenova an exclusive, royalty-bearing (but
         only royalty-bearing in the circumstances described in Section 10.6)
         license (with the right to sub-license):

         (i)      to use the Drug and/or the Product for the purpose of
                  conducting research and development: (i) in the Field outside
                  the Development Territory (to the extent that and for as long
                  as such a license to Xenova in the Field in Europe would
                  conflict with the grant of exclusive development rights in
                  Europe to QLT under 8.4(a)), and thereafter in the Field
                  outside the Territory; and (ii) outside the Field anywhere,
                  world-wide;

         (ii)     to use, sell, have sold, offer for sale, export or import the
                  Drug and/or the Product in the Field outside the Territory,
                  and outside the Field, anywhere, world-wide; and

         (iii)    to make, have made, export or import the Drug and/or the
                  Product, anywhere, world-wide for use in exercising the rights
                  granted under Sections 8.5(a)(i) and (ii);

         under the QLT Patents and such Program Information and other
         Intellectual Property as may be now or hereafter owned or controlled by
         QLT during the Term as may be necessary or useful for such purposes,
         all on the terms and conditions set out in this Agreement. For greater
         certainty:

         (iv)     the license granted to Xenova under Section 8.5(a)(i):

                  (A)      shall be exclusive in the Field outside the
                           Development Territory and outside the Field,
                           anywhere, world-wide, to the exclusion of QLT and all
                           other Persons, and

                  (B)      shall benefit from the reduction in the geographic
                           scope of the Development Territory, as provided in
                           Section 4.2(b); and
         
         (v)      the license granted to Xenova under Section 8.5(a)(ii) shall
                  be exclusive in the Field outside the Territory and outside
                  the Field, anywhere, world-wide, to the exclusion of QLT and
                  all other Persons.

(b)      Grant of Non-Exclusive License. Notwithstanding Section 8.5(a), in
         respect of any Program Information assigned by Xenova to QLT under
         Section 8.2(c) having application beyond the Drug and/or the Product,
         QLT hereby grants to Xenova in addition to the exclusive licence
         granted under Section 8.5(a), a non-exclusive license (royalty bearing
         in the circumstances described in Section 10.6 where relevant) to such
         Program Information on the terms and conditions set out in Section
         8.5(a), applied mutatis mutandis (such necessary changes including the
         terms that such licenses are for products other than Drug or Product
         and shall have no field or territory restrictions).

(c)      Marketing Default. In the event that QLT has committed an uncured
         Marketing Default under Section 5.3, subject to confirmation by
         expedited arbitration thereunder, if any, the scope of the licenses set
         out in Sections 8.5(a) and 8.5(b) shall be automatically [*] and Xenova
         shall have a [*]:

         (i)      [*]

         (ii)     [*]

         under the QLT Patents and such Program Information as may be now or
         hereafter owned or controlled by QLT during the Term as may be
         necessary or useful for such purposes, all on the terms and conditions
         set out in this Agreement as may be amended by the parties pursuant to
         Section 5.3(d).

           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 34 -


(d)      Requirements for Sub-License Agreements. All sublicenses granted by
         Xenova under this Agreement shall:

         (i)      be in writing executed by Xenova and the sub-licensee;

         (ii)     not relieve Xenova of any obligations, whether financial or
                  otherwise, under this Agreement and Xenova shall make all
                  required payments to QLT as if the sublicensed activities were
                  conducted by Xenova; and

         (iii)    contain [*] provisions substantially similar to those
                  contained in this Agreement, which provisions shall allow [*]
                  by QLT and its representatives as if the sub-licensee had
                  contracted directly with QLT.

(e)      Copies of Sub-Licenses. On request of QLT, Xenova will provide to QLT a
         copy of each sublicense agreement entered into by it under this
         Agreement.

8.6      GRANTS OF XENOVA INTELLECTUAL PROPERTY

(a)      Without limiting the grants set forth in Section 8.4, Xenova shall
         ensure that there are no Intellectual Property rights owned or
         controlled by Xenova as of the Effective Date related to the Drug
         and/or the Product or the use thereof, that are necessary or useful to
         permit QLT to perform the Program to completion and to perform the
         manufacturing, marketing, supply and other commercialization activities
         contemplated by this Agreement for the Drug and/or the Product in the
         Field in the Territory ("FURTHER INTELLECTUAL PROPERTY"), other than
         those granted to QLT under this Agreement.

(b)      In the event that Xenova or QLT determines that the Intellectual
         Property rights granted under Section 8.4 or elsewhere in this
         Agreement are insufficient for QLT to perform the Program to completion
         and/or perform the manufacturing, marketing, supply and other
         commercialization activities contemplated by this Agreement for the
         Drug and/or the Product in the Field in the Territory and that QLT
         requests access to Further Intellectual Property for such purposes,
         Xenova will license to QLT, at no additional cost to QLT, such Further
         Intellectual Property as may be owned or controlled by Xenova as of the
         Effective Date related to the Drug and/or the Product or the use
         thereof, as may be necessary or useful for QLT to complete the Program
         and/or perform the manufacturing, marketing, supply and other
         commercialization activities, as the case may be.

                         ARTICLE 9 - MILESTONE PAYMENTS

9.1      UPFRONT PAYMENT

The parties acknowledge that, pursuant to the Interim Agreement and in partial
consideration for Xenova's commitments under the Interim Agreement and this
Agreement, QLT has paid to Xenova an upfront non-refundable, non-creditable fee
of US$10,000,000.

9.2      MILESTONE PAYMENTS

QLT shall pay to Xenova the following milestone payments within 30 days after
achievement of the respective milestone: (a) First US NDA filing. US[*] upon QLT
filing with the FDA the first NDA for the Product in the Field; and (b) US FDA
Approval.

         (i)      [*] upon the granting of first Regulatory Approval by the FDA
                  (whether for a [*]) for the Product in the Field,

         (ii)     [*] upon the granting of each subsequent Regulatory Approval
                  by the FDA for any [*] for the Product in the Field, and 


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 35 -

         (iii)    [*] upon the granting of each subsequent Regulatory Approval
                  by the FDA for any [*] for the Product in the Field;

         provided that the total of all milestone payments paid by QLT under
         this Section 9.2 shall not exceed US$50,000,000 over the Term.

9.3      CURRENCY OF PAYMENT

(a)      U.S. Dollars. The upfront and milestone payments set out in this
         Agreement are and shall be respectively denominated in United States
         dollars.

(b)      Currency Choice. At least 10 days prior to the due date of any upfront
         and milestone payments to be made by QLT to Xenova under Section 9.2,
         Xenova shall notify QLT in writing that Xenova wishes to receive the
         payment in United States dollars, British pounds sterling or a
         combination thereof. If Xenova does not give this currency choice
         notice to QLT, QLT will make the payment in United States dollars.

(c)      Foreign Exchange. If Xenova elects to receive any upfront and milestone
         payment or part thereof in British pounds sterling, Xenova shall notify
         QLT in writing of the date on which it wishes to receive the payment 2
         business days prior to the payment date, which shall be no earlier than
         the due date, and QLT shall make the payment to Xenova in British
         pounds sterling where the exchange rate for United States dollars to
         British pounds sterling will be the buying rate for British pounds
         sterling quoted by QLT's primary banker.

                             ARTICLE 10 - ROYALTIES

10.1     ROYALTIES

Subject to the remainder of this Article 10, QLT shall pay to Xenova, without
duplication, on the terms and conditions set out in this Agreement, the
following royalties in respect of the Finished Product: 

(a)      15% of Net Sales, in respect of any aggregate Net Sales of all Finished
         Products that are less than [*] in a particular calendar year;

(b)      18% of Net Sales, in respect of that portion of aggregate Net Sales of
         all Finished Products that are equal to and/or greater than [*] and
         less than and/or equal to [*] of such Net Sales in a particular
         calendar year; and

(c)      22% of Net Sales, in respect of that portion of aggregate Net Sales of
         all Finished Products that are greater than [*] of such Net Sales in a
         particular calendar year;

provided that, subject to Section 13.1(e), the royalties payable under this
Section 10.1 shall be earned and payable as follows: 

(d)      where one or more Valid Claims applicable to the Finished Product under
         the Xenova Patents licensed to QLT under Section 8.4 exist in the
         country of sale on the date of Commercial Launch of the Finished
         Product therein, the royalties hereunder shall be earned and payable
         for such country until the expiration of the last of such Valid Claims
         in such country;

(e)      where no Valid Claims are applicable to the Finished Product under the
         Xenova Patents licensed to QLT under Section 8.4 in the country of sale
         on the date of Commercial Launch of the Finished Product therein, the
         royalties hereunder shall be earned and payable for such country for a
         period of 10 years commencing on the date of Commercial Launch of the
         Finished Product therein, provided that in respect of [*], if, at any
         time during such 10 year period, there is a [*] for such portion of the
         10 year period, whether all or part, that [*].

10.2     EXCLUSIONS FROM ROYALTIES

No royalties will be payable under Section 10.1 in respect of:


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 36 -


(a)      Finished Products used in clinical trials or for compassionate use for
         which QLT does not receive consideration; and 

(b)      amounts derived from sales of Finished Products by QLT to its
         Affiliates or by QLT or its Affiliates to their respective
         sub-licensees, unless the Affiliates and/or sub-licensees purchasing
         the Finished Products, as the case may be, are the end-users of the
         Finished Products sold.

10.3     THIRD PARTY LICENSE FEES AND ROYALTIES

Notwithstanding Section 13.7, Xenova shall have sole responsibility for:

(a)      the payment of all costs and expenses; and

(b)      the performance of all financial (including license fees and
         royalties), administrative and other obligations, under any Third Party
         Licenses.

10.4     ADJUSTMENT OF ROYALTIES

(a)      Compulsory Licenses or Sub-Licenses. If at any time in the Field in any
         country in the Territory:

         (i)      a competent governmental authority grants to a government
                  entity or other Third Party a compulsory license to
                  manufacture, use or sell the Drug and/or the Product with
                  respect to which royalties would be payable pursuant to
                  Section 10.1; or

         (ii)     QLT or Xenova is required pursuant to an order issued by a
                  competent government authority or other applicable law to
                  grant to a government entity or other Third Party a compulsory
                  sub-license or license, as the case may be, to manufacture,
                  use or sell the Drug and/or the Product with respect to which
                  royalties would be payable pursuant to Section 10.1;

         then QLT may [*] for the compulsory license or sub-license. In the
         event that a competent governmental authority grants, or QLT or Xenova
         is required to grant, a compulsory license in the Field in the
         Territory to a government entity or other Third Party on [*], Xenova
         agrees that the [*] by the parties [*].

(b)      Dispute Resolution - Evaluation/Arbitration. If the parties fail to
         agree on an adjustment to the royalty rate under this Section 10.4
         within [*] after commencing negotiations, either party may refer the
         matter to expedited arbitration under Section 17.2.

10.5     ROYALTY PAYMENTS UPON TERMINATION

If this Agreement is terminated in accordance with Article 16 with respect to
all or some of the Finished Products, QLT shall continue to pay Xenova all
amounts earned pursuant to this Article 10 prior to the date of termination and
any amounts earned thereafter as a result of sales of residual inventory of such
terminated Finished Products. In addition, QLT shall continue to pay to Xenova
all amounts payable hereunder with respect to the Finished Products, if any,
with respect to which this Agreement is not terminated. Such payments shall be
payable on the terms and conditions set out in Article 11, notwithstanding the
termination of this Agreement.

10.6     COMPENSATION FOR USE OF PROGRAM INFORMATION

In consideration of the licenses granted to Xenova by QLT under Section 8.5(a),
Xenova shall pay to QLT, without duplication, during the Term:

(a)      Europe. [*] of the Net Proceeds received by Xenova from the
         commercialization and sale of the Finished Product in the Field in any
         country or regulatory jurisdiction in Europe after Regulatory Approval
         has been obtained therefor;


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 37 -


(b)      Rest of World. [*] of the Net Proceeds received by Xenova from the
         commercialization and sale of the Finished Product in the Field in any
         country or regulatory jurisdiction outside the Development Territory
         after Regulatory Approval has been obtained therefor; and


(c)      ODD. [*] of the Net Proceeds received by Xenova from the
         commercialization and sale of the Drug in the ODD Field in any country
         or regulatory jurisdiction in the Territory after Regulatory Approval
         has been obtained therefor.

                           ARTICLE 11 - PAYMENT TERMS

11.1     PAYMENT OF ROYALTIES

All amounts payable under Sections 10.1 and 10.6 shall be due and payable within
45 days after the close of each calendar quarter during the periods for which
such amounts are earned and payable.

11.2     CURRENCY FOR ROYALTY PAYMENTS

All amounts payable by either party to the other party under Sections 10.1 and
10.6 shall be payable in United States Dollars, by wire transfer, to a bank
account designated by the party receiving such funds. Monthly sales amounts
shall be translated from other currencies to United States Dollars by using an
average rate of exchange computed as the arithmetic average of daily 12 noon
buying rates in New York certified by the New York Federal Reserve Bank for
Customs purposes for each month. [RATE SOURCE: http://www.stls.frb.org/fred;
http://www.federalreserve.gov/release].

11.3     CURRENCY TRANSFER RESTRICTIONS

If in any country payment or transfer of funds out of such country is prohibited
by law or regulation, the parties hereto shall confer regarding the terms and
conditions on which Finished Products shall be sold in such countries, including
the possibility of payment of royalties to Xenova or QLT, as the case may be, in
local currency to a bank account in such country or the renegotiation of
royalties for such sales, and in the absence of any other agreement by the
parties, such funds payable to Xenova or QLT, as the case may be, shall be
deposited by the other party in whatever currency is allowable in a bank
designated in that country as acceptable to Xenova or QLT, as the case may be.

11.4     TAXES

(a)      For the purposes of this Section 11.4, "TAXES" shall include taxes,
         tariffs, customs duties, brokerage fees and other related charges,
         including, without limitation, social services taxes, goods and
         services tax, value added, excise and other sales taxes.

(b)      Without prejudice to any obligation that Xenova may have to charge, and
         recover from QLT, Value Added Tax on any invoice issued to QLT, Xenova
         shall pay all Taxes assessed or levied in connection with any
         activities performed by Xenova or payments made to Xenova under this
         Agreement. Xenova will remit all Taxes to the appropriate governmental
         body within the time legally required for such remittances and shall
         promptly provide QLT with written evidence of all such remittances.

(c)      Without prejudice to any obligation that QLT may have to charge, and
         recover from Xenova, Value Added Tax on any invoice issued to Xenova,
         QLT shall pay all Taxes assessed or levied in connection with any
         activities performed by QLT or payments made to QLT under this
         Agreement. QLT will remit all such Taxes to the appropriate
         governmental body within the time legally required for such remittances
         and shall promptly provide Xenova with written evidence of all such
         remittances.

(d)      If any law or regulation in any country requires the withholding by
         either party of any Taxes due on payments to be remitted to the other
         party under this Agreement, such Taxes shall be deducted from the
         amounts paid to the other party, provided that the remitting party
         shall take all reasonable measures to reduce the amount of such Taxes.
         If the Taxes are deducted from the amounts paid, the remitting party
         shall furnish the other party with the originals of all official


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 38 -


         receipts for such Taxes and such other evidence of such Taxes and
         payment thereof as may be reasonably requested by the other party and
         shall provide any reasonable assistance or co-operation which may be
         requested by the other party in connection with any efforts by the
         other party to obtain a credit for such Taxes.

11.5     SALES AND PAYMENT REPORTS


After first Regulatory Approval of the Finished Product in the Field, and for
the remainder of the Term, QLT shall submit to Xenova, concurrently with the
quarterly payments made pursuant to Section 10.1, written reports consistent
with GAAP setting out for the calendar quarter, for each type of Finished
Product, on a country-by-country basis (where reasonably feasible): 

(a)      a report of milestone payments under Section 9.2 owing to Xenova, if
         any;

(b)      all amounts received by QLT or its Affiliates or sub-licensees, as
         applicable, from the sale of the Finished Product to end-users thereof;

(c)      details of the quantities of the Finished Product sold in each country;

(d)      the amount of any deductions taken from the amounts received by QLT or
         its Affiliates, as applicable, from the sale of the Finished Product to
         end-users of the Finished Product in calculating Net Sales of the
         Finished Product, and

(e)      the amount of Net Sales of the Finished Product; and

(f)      the amount due and payable pursuant to Section 10.1.

11.6     NET PROCEEDS REPORTS

After first Regulatory Approval of the Finished Product in the Field outside the
Territory and/or after first Regulatory Approval of the ODD Product in the ODD
Field in the Territory, as the case may be, and for the remainder of the Term,
Xenova agrees to submit to QLT, concurrently with the quarterly payments made
pursuant to Section 10.6, written reports consistent with GAAP setting out for
the calendar quarter, for each type of Finished Product or ODD Product, as the
case may be, on a country-by-country basis (where reasonably feasible) and being
sufficient to calculate royalties due to QLT under Section 10.6: 

(a)      all amounts received by Xenova or its Affiliates or sub-licensees, as
         applicable, from the sale of the Finished Product to end-users thereof;

(b)      details of the quantities of Finished Product and/or ODD Product sold
         in each country;

(c)      the amount of any deductions taken from the amounts received by Xenova
        or its Affiliates, as applicable, from the sale of the Finished Product
         to end-users of the Finished Product in calculating Net Sales of the
         Finished Product,

(d)      the amount of Net Proceeds for the Product and/or the ODD Product, as
         the case may be; and

(e)      the amount due and payable pursuant to Section 10.6;

11.7     ACCOUNTS AND AUDIT

(a)      Each party shall maintain clear, accurate and complete records in
         accordance with GAAP, for a period of at least [*] for each calendar
         quarter for which such party is obligated to make payments under
         Sections 10.1 or 10.6, as the case may be. In respect of QLT, such
         records shall show the manufacturing, sales, use and other disposition
         of Finished Products in sufficient detail to determine the royalties
         payable to Xenova pursuant to Section 10.1, if any. In respect of
         Xenova, such records shall show the manufacturing, sales, use and other
         disposition of Products and/or ODD Products and royalties received or
         collected from Third Parties from the marketing and distribution of the
         Product and/or ODD products, to determine the amounts to QLT pursuant
         to Section 10.6.

(b)      During the periods set out in Sections 10.1 or 10.6 and for a period of
         [*] thereafter, each party (in this section, the "AUDITED PARTY") shall
         permit the other party (in this section, the "REQUESTING 


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 39 -


         PARTY"), on reasonable notice and at the Requesting Party's cost and
         expense, to arrange for the books and records maintained by the Audited
         Party pursuant to Section 11.7(a) to be examined from time to time
         during the Audited Party's regular business hours, but not more than
         [*], by an independent accounting firm selected by the Requesting Party
         and reasonably acceptable to the Audited Party, provided that such
         independent accounting firm and its accountants are bound by an
         obligation of confidentiality to disclose to the Requesting Party only
         whether the royalty statements and payments made by the Audited Party
         under this Agreement are accurate and, if not accurate, any evidence of
         non-compliance with the terms and conditions of this Agreement. Any
         such examination shall be restricted to records covering the preceding
         [*] period. The Requesting Party shall provide to the Audited Party a
         copy of any audit reports prepared under this subsection.

(c)      In the event the report demonstrates that a party has underpaid the
         other party, the underpaying party shall pay the amount of such
         underpayment immediately. In the event that the underpaid party is the
         Requesting Party, if the underpayment is more than [*] for the audited
         period, the Audited Party shall reimburse the Requesting Party for the
         expense of the audit.

(d)      In the event the report demonstrates that a party has overpaid the
         other party, the overpaying party may deduct the amount of such
         overpayments from future amounts owed to the other party.

11.8     CONFIDENTIALITY OF REPORTS

Each party agrees that:

(a)      the information set forth in the reports required by Sections 11.5 and
         11.6; and

(b)      the records subject to examination under Section 11.7;

shall be subject to the obligations of confidentiality set out in Article 7 and
shall be maintained in confidence by the receiving party and by any independent
accounting firm selected by such party, shall not be used by such party or such
accounting firm for any purpose other than verification of the performance by
the other party of its obligations hereunder, and shall not be disclosed by the
receiving party or such accounting firm to any other person except for purposes
of enforcing this Agreement. 

             ARTICLE 12 - REPRESENTATIONS, WARRANTIES AND COVENANTS

12.1     XENOVA'S REPRESENTATIONS, WARRANTIES AND COVENANTS

Xenova hereby represents, warrants and covenants to QLT that:

(a)      Authority. Xenova is a corporation duly organized, existing, and in
         good standing under the laws of England and Wales and has the power,
         authority, and capacity to enter into this Agreement and to carry out
         the transactions and grant the licenses contemplated by this Agreement,
         all of which have been duly and validly authorised by all requisite
         corporate proceedings;

(b)      No Conflicting Agreements. Xenova has not entered and during the Term
         will not enter into any agreement, arrangement or commitment with any
         Person regarding the Drug or the Product that is inconsistent with or
         in derogation of Xenova's obligations under this Agreement and Xenova
         is not subject to any obligations that would prevent it from entering
         into or carrying out its obligations under this Agreement;

(c)      Ownership and Rights. Except as set forth in EXHIBIT 12.1(c), (i)
         Xenova holds all right, title and interest in and to the Xenova
         Patents, free and clear of any rights or encumbrances of any Third
         Parties in, or in respect of, the Xenova Patents which would impact the
         rights granted to QLT under this Agreement; and (ii) the Existing
         Xenova Program Information was generated either by Xenova employees or
         by Third Party contractors, and in each case the terms of employment or
         engagement of such employees or contractors vested in Xenova all right,
         title and interest in and to any Intellectual Property generated by
         them in respect of such Existing Xenova Program Information, and (iii)
         Xenova is not aware (but without necessarily having conducted any


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 40 -


         searches or investigations) that any Third Party has rights in any
         Existing Xenova Program Information that would adversely affect QLT's
         rights under this Agreement;

(d)      List of Xenova Patents. As far as Xenova is aware (but without
         necessarily having conducted any searches or investigations), EXHIBIT
         1.1(WWW) sets forth a complete list of all Patents that are owned or
         controlled by Xenova as of the Effective Date that are necessary or
         useful for the rights and licenses to the Drug and/or Product granted
         to QLT hereunder;

(e)      Patent Applications Accurate. All statements contained in any
         applications for the registration of the Xenova Patents were true and
         correct as of the date of such applications. For the purposes hereof,
         [*] Patent;

(f)      Patents in Good Standing. As of the Effective Date, in respect of all
         issued Xenova Patents, all maintenance fees and similar annuity
         payments have been made in each of the jurisdictions requiring such
         payments;

(g)      Disclosure. Xenova has disclosed all material data in its possession,
         in any form concerning, and experimental reports in its possession in
         writing of, the Drug and/or Product known to or performed by or at the
         request of Xenova;

(h)      Future Patents. Xenova shall utilize commercially reasonable efforts in
         prosecuting all applications for registration of Xenova Patents filed,
         and in maintaining all Xenova Patents issued as of and after the
         Effective Date;

(i)      Sufficiency of Grants. As far as Xenova is aware (but without
         necessarily having conducted any searches or investigations), and
         except as set forth on EXHIBIT 12.1(c), (A) there are no Intellectual
         Property rights owned or controlled by Xenova as of the Effective Date
         related to the Drug and/or the Product or the use thereof, that are
         necessary or useful to permit QLT to perform the Program to completion
         and to perform the manufacturing, marketing, supply and other
         commercialization activities contemplated by this Agreement for the
         Drug and/or the Product in the Territory, other than those granted to
         QLT under this Agreement, and (B) no Third Party Patent or other
         proprietary right would be infringed by the development, manufacturing,
         marketing, supply and other commercialization activities for the Drug
         and/or the Product in the Territory as contemplated by this Agreement;

(j)      No Third Party Licenses. Xenova is not a party to any Third Party
         Licenses;

(k)      No Complaints. Except as set forth in EXHIBIT 12.1(c), Xenova has not
         received, in respect of any of the Xenova Patents, any notice,
         complaint, threat or claim alleging infringement of, any Patent,
         industrial design, trade secret or other Intellectual Property right or
         proprietary right of any other Person.

(l)      No Regulatory Actions. Xenova has not received, in respect of the Drug,
         any hold/seize (medical) actions from any regulatory agency,
         department, bureau or other governmental entity.

12.2     QLT'S REPRESENTATIONS, WARRANTIES AND COVENANTS

QLT hereby represents, warrants and covenants to Xenova that:

(a)      Authority. QLT is a corporation duly organized, existing, and in good
         standing under the laws of the Province of British Columbia and has the
         power, authority, and capacity to enter into this Agreement and to
         carry out the transactions and grant the licenses contemplated by this
         Agreement, all of which have been duly and validly authorised by all
         requisite corporate proceedings;

(b)      No Conflicting Agreements. QLT has not entered and during the Term will
         not enter into any agreement, arrangement or commitment with any Person
         regarding the Drug or the Product that is inconsistent with or in
         derogation of QLT's obligations under this Agreement and QLT is not
         subject to any obligations that would prevent it from entering into or
         carrying out its obligations under this Agreement;


           * Material has been omitted and filed with the Commission

<PAGE>

                                     - 41 -



(c)      Program. QLT shall utilize sound and reasonable business practice and
         judgment in performance of the Program, including the conduct of
         clinical studies thereunder;

(d)      Future Patents. QLT shall utilize commercially reasonable efforts in
         prosecuting all applications for registration of QLT Patents filed, and
         in maintaining all QLT Patents issued as of and after the Effective
         Date.

          ARTICLE 13 - PATENT PROSECUTION, MAINTENANCE AND ENFORCEMENT

13.1     XENOVA PATENTS - PROSECUTION AND MAINTENANCE

(a)      Xenova's Responsibility. During the Term, except as otherwise set out
         in this section, Xenova shall be responsible for, in its sole
         discretion and at its sole expense, the prosecution and maintenance of
         the Xenova Patents.

(b)      Review. QLT shall have the right to:

         (i)      review all pending applications, Patents, other proceedings,
                  communications, reports and observations relating to the
                  Xenova Patents; and

         (ii)     make recommendations to Xenova concerning the Xenova Patents.
                  Xenova shall reasonably consider such comments but shall have
                  no obligation to revise the filings or other communications.

(c)      Disclosure. Xenova shall promptly disclose to QLT and keep QLT fully
         informed and/or supply QLT in a timely fashion with:

         (i)      the complete texts of all Xenova Patents and all relevant
                  patent applications filed and/or controlled by Xenova; and

         (ii)     all information received concerning:

                  (A)      the institution or possible institution of any
                           interference, opposition, re-examination, reissue,
                           revocation, nullification or any official proceeding
                           involving any Xenova Patents; or

                  (B)      the course of patent prosecution or other proceedings
                           related to any Xenova Patents;

                  including by providing QLT with copies of substantive
                  communications, search reports and third-party observations
                  submitted to or received from patent offices.



(d)      Notice to QLT.

         (i)      Xenova shall notify QLT in writing of its intentions with
                  regard to ceasing prosecution or maintenance of Patent
                  protection for any Xenova Patent in any country in the
                  Territory in reasonable time for QLT to continue prosecuting
                  or maintaining the Patent protection at its own discretion and
                  expense, with a rebuttable presumption that less than [*]
                  notice is not sufficient notice; and

         (ii)     Xenova will execute such documents and otherwise cooperate
                  with QLT as may be necessary (but without significant expense
                  to Xenova) to perfect and maintain the Patent protection that
                  Xenova is ceasing and QLT elects to continue pursuant to
                  Section 13.1(d)(i).

(e)      No Royalty. In the event that QLT elects to continue prosecution or
         maintenance of any Patent forming part of the Xenova Patents in any
         country of the Territory, no royalty obligations shall accrue with
         respect to sales of Finished Products in that country unless Xenova
         agrees to pay the costs of such prosecution or maintenance.


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 42 -


13.2     QLT PATENTS - PROSECUTION AND MAINTENANCE

(a)      QLT's Responsibility. During the Term, except as otherwise set out in
         this Section, QLT shall be responsible for, in its sole discretion and
         at its sole expense, prosecution and maintenance of the QLT Patents.

(b)      Review. Xenova shall have the right to:

         (i)      review all pending applications, Patents, other proceedings,
                  communications, reports and observations relating to the QLT
                  Patents; and

         (ii)     make recommendations to QLT concerning the QLT Patents. QLT
                  shall reasonably consider such comments but shall have no
                  obligation to revise the filings or other communications.

(c)      Disclosure. QLT shall promptly disclose to Xenova and keep Xenova fully
         informed, and/or supply Xenova in a timely fashion with:

         (i)      the complete texts of all QLT Patents, and

         (ii)     all information received concerning:

                  (A)      the institution or possible institution of any
                           interference, opposition, re-examination, reissue,
                           revocation, nullification or any official proceeding
                           involving any QLT Patents; and

                  (B)      the course of patent prosecution or other proceedings
                           related to any QLT Patents;

                  including by providing Xenova with copies of substantive
                  communications, search reports and Third Party observations
                  submitted to or received from patent offices.

(d)      Notice to Xenova.

         (i)      QLT shall notify Xenova in writing of its intentions with
                  regard to ceasing prosecution or maintenance of Patent
                  protection for any QLT Patent in any country in the Territory
                  in reasonable time for Xenova to continue prosecuting or
                  maintaining the Patent protection at its own discretion and
                  expense, with a rebuttable presumption that less than [*]
                  notice is not sufficient notice; and

         (ii)     QLT will execute such documents and otherwise cooperate with
                  Xenova as may be necessary (but without significant expense to
                  QLT) to perfect and maintain the Patent protection that QLT is
                  ceasing and Xenova elects to continue pursuant to Section
                  13.2(d)(i).

13.3     PATENTABLE IMPROVEMENTS

In the event of any Program Information comprising patentable Intellectual
Property, each party will, at the request of the party owning such Program
Information, reasonably cooperate with the other party in seeking Patent
protection therefor. 

13.4     XENOVA PATENTS - INFRINGEMENT

(a)      Notice. Each of QLT and Xenova agrees that during the Term it will
         promptly notify the other party in the event that it becomes aware of
         any infringement or potential infringement of the Xenova Patents.

(b)      QLT to Prosecute. QLT agrees that during the Term it will prosecute
         infringers of the Xenova Patents or otherwise act to eliminate
         infringement of the Xenova Patents by Third Parties in the Territory
         when, in the sole judgement and discretion of QLT, such action is
         necessary, proper and justified in relation to the Product in the Field
         in the Territory. In the event litigation is initiated, the costs of
         litigation shall be funded as follows: 

         (i)      subject to clause (ii), [*] of the costs of litigation shall
                  be borne by QLT; and


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 43 -


         (ii)     [*] of the costs of litigation shall be borne by Xenova,
                  subject to the following:

                  (A)      Xenova's funding obligations will be fully satisfied
                           by QLT setting off such costs against royalties
                           payable by QLT to Xenova under Section 10.1 and
                           Xenova will not be obligated to make out-of-pocket
                           expenditures to satisfy this funding obligation; and

                  (B)      in no event will Xenova's funding obligations under
                           this Section 13.4(b) exceed [*] in any calendar year.

(c)      Costs and Awards. The costs of the litigation shall be deemed to be
         QLT's actual Third Party expenses directly related to or incurred in
         connection with the alleged infringement. At such time as the
         infringement ceases (whether voluntarily, by settlement or by court
         order), QLT's full royalty obligations shall resume. Any award,
         recovery, lump-sum settlement or royalty payment (in this section, an
         "AWARD") made to QLT by the alleged infringer shall be treated as
         follows:

         (i)      Xenova Reimbursed. first, the Award shall be applied to pay
                  Xenova in respect of any amounts set-off against royalties
                  pursuant to Section 13.4(b)(ii)(A);

         (ii)     QLT Reimbursed. secondly, the Award shall be applied to
                  reimburse QLT for all actual Third Party expenses directly
                  related to or incurred in connection with the alleged
                  infringement for which royalty payments were not withheld; and

         (iii)    Remainder. thirdly, any remaining amount of the Award shall be
                  treated as if it were Net Sales of Finished Product, with
                  Xenova receiving a royalty on the remaining amount in
                  accordance with Section 10.1 and QLT retaining the balance.

(d)      QLT Does Not Prosecute. If QLT elects not to bring or prosecute
         infringement litigation pursuant to this Section 13.4 it will promptly
         notify Xenova and Xenova may elect to bring suit against the alleged
         infringer at its sole expense, and in its sole discretion. In this
         case, any award, recovery, lump-sum settlement or royalty payment made
         by the alleged infringer shall be retained by Xenova.

13.5     QLT PATENTS - INFRINGEMENT

(a)      QLT's Responsibility. QLT agrees that during the Term, it will, at
         QLT's sole cost and expense, protect its interests in the QLT Patents
         from infringement by Third Parties and that it will prosecute
         infringers or otherwise act to eliminate infringement when, in the sole
         judgement and discretion of QLT, such action is necessary, proper and
         justified.

(b)      Xenova's Assistance. Xenova agrees that during the Term it will
         promptly notify QLT in the event that it becomes aware of any
         infringement or potential infringement of the QLT Patents and agrees
         that it will, at QLT's request and expense, reasonably assist QLT to
         prevent or discontinue any such infringement or potential infringement.

13.6     THIRD PARTY CLAIMS OF INFRINGEMENT

(a)      In the event of the initiation of any suit (an "INFRINGEMENT SUIT") in
         the Territory by a Third Party against Xenova or QLT or any of their
         respective Affiliates for Patent infringement arising from the
         manufacture, use, sale, distribution or marketing of the Drug and/or
         the Product, the party sued shall promptly notify the other party in
         writing.

(b)      In the event that a party alone is subject to an Infringement Suit:

         (i)      that party shall have the first right, but not the obligation,
                  to defend the Infringement Suit;

         (ii)     that party will provide the other party with the opportunity
                  to participate in the defense of such Infringement Suit; and

         (iii)    the other party shall assist and cooperate with the party
                  being sued in any such litigation.

         If the party being sued fails to defend the Infringement Suit within a
         reasonable time after receiving notice of the Infringement Suit, then
         the other party shall have the right, but not the 


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 44 -


         obligation, to defend the Infringement Suit and the party being sued
         shall assist and cooperate with the other party in any such litigation.

(c)      In the event that both QLT and Xenova are subject to an Infringement
         Suit:

         (i)      each of Xenova and QLT shall have the right, but not the
                  obligation, to jointly defend the Infringement Suit; and

         (ii)     the parties shall assist and cooperate with each other in any
                  such litigation.

         If either party fails to jointly defend the Infringement Suit with the
         other party within a reasonable time after receiving notice of the
         Infringement Suit, then the other party shall have the right, but not
         the obligation, to solely defend the Infringement Suit and the
         declining party shall assist and cooperate with the defending party in
         any such litigation.

(d)      The party or parties conducting the defense of an Infringement Suit
         shall have full or joint control over its conduct, as the case may be,
         provided that neither party shall make any admissions or concessions
         nor enter into any settlements with respect to an Infringement Suit
         without the other party's prior written consent, which consent shall
         not be unreasonably withheld, conditioned or delayed.

(e)      The costs of defending any Infringement Suit incurred by either party
         (i) shall be borne by Xenova if the infringement arises primarily from
         [*][*] (and primarily not [*][*]) or from a breach by Xenova of any of
         the warranties given by it under Section 12.1, (ii) shall be borne by
         QLT if the infringement arises from a breach by QLT of any of the
         warranties given by it under Section 12.2, and (iii) shall otherwise be
         borne by each party [*]to the extent that [*] (thus, by way of example,
         if the costs relate to the defence of a claim that is [*]).

13.7     INFRINGEMENT OF THIRD PARTY PATENTS

(a)      Without limiting Xenova's obligation to indemnify QLT under Section
         15.1, and notwithstanding Section 10.1, in the event that any
         activities licensed to QLT under this Agreement are found to infringe
         the Intellectual Property rights of a Third Party and result in the
         payment of Third Party royalties or other compensation by QLT or a QLT
         Affiliate or sub-licensee to the Third Party, QLT may, in its sole
         discretion, reduce its royalty payments to Xenova under Section 10.1 in
         an amount equal to the Third Party royalties or other compensation paid
         to the Third Party, up to a maximum of [*] of the royalties payable to
         Xenova under Section 10.1, in respect of each country in the Territory
         for which Third Party royalties are being paid, provided that such
         reductions shall only be made where the infringement arises from the
         use of Intellectual Property licensed to QLT under this Agreement, and
         not any other Intellectual Property that QLT chooses to use in the
         manufacture, use, sale, distribution or marketing of the Drug and/or
         the Product.

                            ARTICLE 14 - TRADEMARKS

14.1     PRODUCT TRADEMARKS

(a)      During the Term, QLT shall be responsible for, in its sole discretion
         and at its sole expense, the origination, selection, application,
         prosecution, registration and maintenance of one or more trademarks and
         trade-names under which the Product and/or the Finished Product will be
         marketed, distributed and sold in the Field in the Territory.

(b)      QLT will, at Xenova's request, add or cause to be added, a marking in a
         form proposed by Xenova and reasonably acceptable to QLT on the
         packaging of all Finished Product sold by QLT, its Affiliates or
         sub-licensees hereunder, to indicate the connection of Xenova as
         licensor of the Product, provided that such marking shall not cause any
         contravention of GMPs or any United States of America or other foreign
         federal, state, provincial or local laws, regulations or bylaws,
         including those relating to labelling or packaging.


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 45 -


14.2     USE OF TRADEMARKS

Nothing contained in this Agreement shall give either party any right to use any
trademark or trade-name of the other party, except with the prior written
consent of the other party.

              ARTICLE 15 - INDEMNITY AND LIMITATIONS OF LIABILITY

15.1     MUTUAL INDEMNIFICATION

Except as otherwise specifically provided in this Agreement, each of the parties
(in this section, an "INDEMNIFYING PARTY") agrees to defend, indemnify and hold
harmless the other party and its Affiliates and their respective directors,
officers, employees and agents (in this section, the "INDEMNIFIED PARTIES") from
and against all threatened or actual actions, claims, demands, proceedings,
suits, losses, damages, costs and expenses (including reasonable attorney fees)
but excluding punitive damages (collectively, in this Article, "CLAIMS") of
Third Parties of whatsoever kind or nature (including but not limiting the
generality of the foregoing, in respect of death, injury, loss or damage to any
person or property) incurred, caused, arising out of or relating to: 

(a)      any breach or violation of, or failure to properly perform, any
         covenant made in this Agreement by the Indemnifying Party, unless
         waived in writing by the applicable Indemnified Party;

(b)      any breach of any of the representations or warranties made in this
         Agreement by the Indemnifying Party; or

(c)      the gross negligence or willful misconduct of the Indemnifying Party;

except to the extent that such Claims are attributable to the negligence or
willful misconduct of any of the Indemnified Parties.

15.2     PRODUCT LIABILITY INDEMNITY

In addition to Section 15.1,

(a)      QLT agrees to defend, indemnify and hold harmless Xenova and its
         Affiliates and their respective directors, officers, employees and
         agents (in this section, the "XENOVA INDEMNIFIED PARTIES") from and
         against all Claims of Third Parties of whatsoever kind or nature
         (including but not limiting the generality of the foregoing, in respect
         of death, injury, loss or damage to any person or property) incurred,
         caused, arising out of or relating to:

         (i)      the administration, utilization and/or ingestion of the Drug
                  and/or the Product in the Field in the Development Territory
                  pursuant to any clinical trials conducted by or on behalf of
                  QLT under this Agreement; and

         (ii)     the administration, utilization and/or ingestion of the Drug
                  and/or the Product in the Field in the Territory provided to
                  the injured Third Party by or on behalf of QLT under this
                  Agreement;

         except to the extent that such Claims are attributable to the
         negligence or willful misconduct of the Xenova Indemnified Parties; and

(b)      Xenova agrees to defend, indemnify and hold harmless QLT and its
         Affiliates and their respective directors, officers, employees and
         agents (in this section, the "QLT INDEMNIFIED PARTIES") from and
         against all Claims of Third Parties of whatsoever kind or nature
         (including but not limiting the generality of the foregoing, in respect
         of death, injury, loss or damage to any person or property) incurred,
         caused, arising out of or relating to:

         (i)      the administration, utilization and/or ingestion of the Drug
                  and/or the Product:

                  (A)      in the Field outside the Development Territory, or

                  (B)      outside the Field, anywhere, worldwide,

                  pursuant to any clinical trials conducted by or on behalf of
                  Xenova; and



<PAGE>
                                     - 46 -


         (ii)     the administration, utilization and/or ingestion of the Drug
                  and/or the Product:

                  (A)      in the Field outside the Development Territory, or

                  (B)      outside the Field, anywhere, worldwide,

                  provided to the injured Third Party by or on behalf of Xenova;

         except to the extent that such Claims are attributable to the
         negligence or willful misconduct of the QLT Indemnified Parties.

15.3     INDEMNIFICATION PROCEDURE

If either QLT or Xenova or any of their respective Affiliates (in this section,
an "INDEMNIFIED PARTY"), receives any written Claim which it believes is the
subject of, or otherwise believes that circumstances exist giving rise to, an
indemnity under this Agreement by either Xenova or QLT, as the case may be (in
this section, an "INDEMNIFYING PARTY"), the Indemnified Party shall, as soon as
reasonably practicable after forming such belief, give notice of the Claim or
circumstances to the Indemnifying Party, including full particulars of the claim
or circumstances to the extent known to the Indemnified Party, provided,
however, that the failure to give timely notice to the Indemnifying Party as
contemplated hereby shall not release the Indemnifying Party from any liability
to indemnify any persons indemnified under this Article 15, and, subject to
Article 13 in respect of infringement claims and infringement actions, the
following shall apply:

(a)      the Indemnifying Party shall have the right, by prompt notice to the
         Indemnified Party, to assume the defense of the Claim with counsel
         reasonably satisfactory to the Indemnified Party, and at the cost of
         the Indemnifying Party;

(b)      if the Indemnifying Party does not so assume the defense of the Claim,
         the Indemnified Party may assume the defense with counsel of its choice
         at the sole expense of the Indemnifying Party;

(c)      if the Indemnifying Party assumes the defense of the Claim, the
         Indemnified Party may participate therein through counsel of its
         choice, but the cost of such counsel shall be borne solely by the
         Indemnified Party;

(d)      any party not assuming the defense of any such Claim shall render all
         reasonable assistance to the party assuming the defense, and all
         out-of-pocket costs of this assistance shall be borne solely by the
         Indemnifying Party; and

(e)      no Claim shall be settled other than by the party defending the Claim,
         and then only with the consent of the other party, which shall not be
         unreasonably withheld, provided, however, that the Indemnified Party
         shall have no obligation to consent to any settlement of any Claim
         which imposes on the Indemnified Party any liability or obligation
         which cannot be assumed and performed in full by the Indemnifying
         Party.

15.4     NO CONSEQUENTIAL DAMAGES

EXCEPT FOR, AND WITHOUT LIMITING THE SCOPE OF THE INDEMNIFICATION OBLIGATION
UNDER, Sections 15.1 AND 15.2, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY LOST PROFITS, LOST SAVINGS OR ANY PUNITIVE, EXEMPLARY,
INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES ARISING OUT OF ANY BREACH OR
BREACHES OF THIS AGREEMENT OR THE POSSESSION OR USE OF THE DRUG, THE PRODUCT OR
ANY OTHER MATERIALS OR SERVICES TO BE SUPPLIED HEREUNDER, EVEN IF THE OTHER
PARTY HAS KNOWLEDGE OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGES.

                       ARTICLE 16 - TERM AND TERMINATION

16.1     TERMINATION

This Agreement may not be terminated by either party except in accordance with
this Article 16. Termination of this Agreement, in whole or in part, before the
expiration of the term shall be without 


<PAGE>
                                     - 47 -


prejudice to the right of any party accrued to the effective date of
termination, without prejudice to the remedies in respect of any previous breach
of any of the representations, warranties and covenants herein contained and
without prejudice to any rights to indemnification set forth herein and to any
other provisions referred to in Section 16.9 and without prejudice to any other
right or remedy that the terminating party may have. 

16.2 EXPIRATION 

(a)      This Agreement shall commence on the Effective Date and shall expire
         upon the later of:

         (i)      the expiration, lapse or invalidation of the last Valid Claim
                  under any Xenova Patent licensed to QLT under Section 8.4 in
                  all countries in the Territory; and

         (ii)     the expiration 10 years after the date of Commercial Launch in
                  the last country in the Territory for which QLT chooses to
                  undertake Commercial Launch;

         unless otherwise agreed by the parties, and subject to any earlier
         termination in accordance with the provisions of this Agreement (the
         "TERM").

(b)      Notwithstanding the Term set out in Section 16.2(a), in each country in
         the Territory, upon the later of the expiration, lapse or invalidation
         of the last Valid Claim licensed to QLT under Section 8.4 in such
         country and the expiration of 10 years after Commercial Launch in such
         country, if applicable:

         (i)      this Agreement shall be terminated with respect to the grant
                  of license set out under Section 8.4 in such country, and
                  without further action on the part of either party, QLT shall
                  be granted a perpetual, non-exclusive, fully paid,
                  royalty-free license, with the right to sub-license, under the
                  Program Information and other Intellectual Property owned or
                  controlled by Xenova to develop, make, have made, use, have
                  used, sell, have sold, offer for sale, import and export the
                  Drug and/or the Product in the Field in such country; and

         (ii)     all regulatory licenses and filings in such country related to
                  the Drug and/or the Product shall remain owned by QLT.

16.3     EARLY TERMINATION BY QLT

(a)      Before Commercial Launch. At any time before Commercial Launch of the
         Product in any country in the Territory, QLT may terminate this
         Agreement for convenience, in its entirety, upon not less than 90 days'
         prior written notice to Xenova; provided that if such termination
         notice is to be given within the [*]after the Effective Date, QLT shall
         first offer to discuss with Xenova QLT's intention to terminate and the
         reasons therefor before delivering any such termination notice.

(b)      After Commercial Launch. At any time after Commercial Launch of the
         Product in any country in the Territory, QLT may terminate this
         Agreement for convenience, in its entirety, upon not less than 180
         days' prior written notice to Xenova.

(c)      Adverse Change. Notwithstanding Sections 16.3(a) and 16.3(b), in the
         event of any confirmed information of Serious Adverse Events related to
         the utilization, medical administration, safety or efficacy profile of
         the Drug or the Product, QLT may terminate this Agreement, in its
         entirety, at any time upon 60 days prior written notice to Xenova.

(d)      Material Breach. At any time during the Term, in the event of a
         material breach by Xenova of any of its material obligations under this
         Agreement, QLT may terminate this Agreement, in its entirety:

         (i)      upon not less than 45 days' prior written notice to Xenova, if
                  the breach is, by its nature, reasonably expected to be
                  curable, provided that Xenova shall have the opportunity to:

                  (A)      cure the breach within the 45-day period; or


           * Material has been omitted and filed with the Commission

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                  (B)      if the breach is not capable of cure within the
                           45-day cure period, commence a cure within the 45-day
                           period and diligently pursue the cure to completion
                           within a reasonable period;

                  to avoid termination of this Agreement; or

         (ii)     immediately by written notice, if the breach is, by its
                  nature, incurable.

16.4     EARLY TERMINATION BY XENOVA

Material Breach. At any time during the Term, in the event of a material breach
by QLT of any of its material obligations under this Agreement, Xenova may
terminate this Agreement, in its entirety:

(a)      upon not less than 45 days' prior written notice to QLT, if the breach
         is, by its nature, reasonably expected to be curable, provided that QLT
         shall have the opportunity to:

         (i)      cure the breach within the 45-day period; or

         (ii)     if the breach is not capable of cure within the 45-day cure
                  period, commence a cure within the 45-day period and
                  diligently pursue the cure to completion within a reasonable
                  period;

         to avoid termination of this Agreement; or

(b)      immediately by written notice, if the breach is, by its nature,
         incurable.

For greater certainty, the parties acknowledge and agree that a Marketing
Default shall not, in and of itself, constitute a material breach by QLT of a
material obligation under this Agreement and that Xenova's sole remedies in
respect of a Marketing Default (for which Xenova pursues remedies under Section
5.3) shall be as set out in Section 5.3(d).

16.5     TERMINATION ON BANKRUPTCY

During the Term, either party may, at its option, on 10 days prior written
notice, terminate this Agreement upon the happening of any one or more of the
following events by delivering written notice to that effect to the other party:

(a)      if the other party is adjudged bankrupt or insolvent;

(b)      if any petition under the Bankruptcy and Insolvency Act (Canada), the
         Insolvency Act (UK), or any other statute of similar purport, is filed
         by or against the other party and such petition is not dismissed within
         90 days after it has been filed;

(c)      if the other party makes a general assignment for the benefit of its
         creditors;

(d)      if the other party applies for, or appoints, a receiver, trustee,
         custodian, or liquidator of the party or of its assets;

(e)      if any resolution is passed or order made or other steps taken for the
         winding up, liquidation or other termination of the existence of the
         other party; or

(f)      if the other party ceases to carry on its business.

16.6     EFFECT OF TERMINATION

In the event that this Agreement is terminated:

(a)      both parties hereto shall be released from all obligations and duties
         imposed or assumed under this Agreement except as expressly provided
         under Section 16.9;

(b)      each of QLT and Xenova shall remain responsible to pay to the other
         party all royalty payments and other amounts accruing prior to the
         effective date of termination, which shall be payable on the terms and
         conditions set out in Article 11 notwithstanding the termination of
         this Agreement, and may proceed to enforce payment thereof through
         exercise any or all of the rights and 



<PAGE>
                                     - 49 -


         remedies contained herein or otherwise available to it at law or in
         equity, successively or concurrently at the option of such party; and

(c)      QLT and its sub-licensees shall have a reasonable time to liquidate all
         inventory of Finished Product in QLT's possession or control, provided
         that QLT will continue to make royalty payments to Xenova in the manner
         specified under this Agreement on Net Sales of such inventories,
         notwithstanding the termination of this Agreement.

16.7     XENOVA LICENSE IN THE CASE OF CERTAIN EARLY TERMINATIONS

In the event that:

(a)      QLT terminates this Agreement under any of Sections 16.3(a), 16.3(b) or
         16.3(c);

(b)      Xenova terminates this Agreement under Section 16.4;

(c)      a country is deleted from the Territory under Section 5.2(b), with
         respect to the country deleted; or

(d)      either Party terminates this Agreement under Section 16.5;

then the following shall occur:

(e)      if the effective date of termination occurs prior to the receipt of the
         first NDA approval of the Product in the Field in the Territory:

         (i)     QLT shall grant to Xenova an irrevocable, royalty-free,
                 world-wide (or in the case of a country deleted from the
                 Territory pursuant to Section 5.2(b), for such country),
                 exclusive license, with the right to sublicense, to use the
                 Drug and/or the Product for the purpose of researching,
                 developing, making, having made, using, having used, selling,
                 having sold, offering for sale, importing and exporting the
                 Drug and/or the Product in the Field, anywhere, world-wide (or
                 in the case of a country deleted from the Territory pursuant to
                 Section 5.2(b), for such country), under the QLT Patents and
                 such Program Information and other Intellectual Property as may
                 be owned or controlled by QLT as of the effective date of
                 termination as may be necessary or useful for such purposes,
                 all on the terms and conditions set out in this Agreement,
                 provided that, in respect of any Program Information assigned
                 by Xenova to QLT under Section 8.2(c) having application beyond
                 the Drug and/or the Product, the license set out herein shall
                 be non-exclusive, and

         (ii)    QLT will assign and transfer to Xenova all registered
                 trademarks, trademark applications and trade-names, including
                 all goodwill associated therewith, used solely to market,
                 distribute and sell the Product and/or the Finished Product in
                 the Field in the Territory, and

         (iii)   subject to the Act and other applicable laws, QLT will use
                 commercially reasonable efforts to assign and transfer to
                 Xenova all regulatory filings made by or on behalf of QLT in
                 connection with the Drug and/or the Product in the Field in the
                 Territory; and

(f)      if the effective date of termination occurs after the receipt of the
         first NDA approval of the Product in the Field in the Territory, the
         provisions of Sections 16.7(e)(i), 16.7(e)(ii) and 16.7(e)(iii) shall
         apply, provided that the license granted under Section 16.7(e)(i) shall
         be a royalty-bearing license. In this case, the royalty to be paid by
         Xenova to QLT shall:

         (i)      be paid in consideration for the development and
                  commercialization work performed by QLT prior to the effective
                  date of termination,

         (ii)     be mutually agreed by the parties negotiating in good faith,
                  provided that:

                  (A)      the royalty rates shall be lower than those set out
                           in Section 10.1, which shall be the maximum royalty
                           rates available, and

                  (B)      if the parties do not agree to a royalty rate within
                           45 days after the effective date of termination, the
                           matter will be referred to expedited arbitration
                           under Section 17.2, and



<PAGE>
                                     - 50 -


         (iii)    be payable on terms and conditions set out in Article 11,
                  notwithstanding the termination of this Agreement,

         provided that if Xenova has terminated this Agreement for QLT's failure
         to implement a Specific Action under Section 5.2(c), the cumulative
         amount payable by Xenova in respect of the royalty payable hereunder
         shall be capped at a maximum amount equal to QLT's cumulative
         development and commercialization costs with respect to the Drug and/or
         the Product in the Field.

16.8     QLT LICENSE IN THE CASE OF CERTAIN EARLY TERMINATIONS

In the event that:

(a)      QLT terminates this Agreement under Section 16.3(d) due to a material
         breach by Xenova; or

(b)      QLT terminates this Agreement under Section 16.5;

all rights and licenses granted by Xenova to QLT under this Agreement shall
continue as exclusive or non-exclusive royalty-bearing licenses, as the case may
be, granted by Xenova to QLT on the terms and conditions set out in this
Agreement, provided that: 

(c)      the royalty rates to be paid by QLT to Xenova after the effective date
         of termination shall:

         (i)      be mutually agreed by the parties negotiating in good faith,
                  and

         (ii)     be lower than the royalty rates set out in Section 10.1, which
                  shall be the maximum royalty rates available, and

(d)      if the parties do not agree to a royalty rate within 45 days after the
         effective date of termination, the matter will be referred to expedited
         arbitration under Section 17.2.

Such royalty payments shall be payable on the terms and conditions set out in
Article 11 notwithstanding the termination of this Agreement.

16.9     SURVIVAL

Expiration or early termination of this Agreement shall not relieve either party
of its obligations incurred prior to such expiration or early termination. In
addition, the following provisions shall survive any expiration or early
termination of this Agreement: 

(a)      Article 1 (Interpretation);

(b)      Section 3.11 (QLT's Liability for Recall);

(c)      Article 7 (Confidentiality and Use of Information);

(d)      8.1 (Ownership of Confidential Information) and 8.2 (Ownership of
         Program Information);

(e)      Section 10.5 (Royalty Payments Upon Termination);

(f)      Sections 11.1 to 11.6 inclusive (Payment Terms) shall survive in
         respect of any payments that may be due under this Agreement after the
         date of termination;

(g)      Section 11.7 (Accounts and Audit) and 11.8 (Confidentiality of
         Reports);

(h)      Article 12 (Representations, Warranties and Covenants);

(i)      Article 15 (Indemnity and Limitations of Liability);

(j)      Sections 16.6 (Effect of Termination), 16.7 (Xenova License in the case
         of Certain Early Terminations), 16.8 (QLT License in the case of
         Certain Early Terminations) and 16.9 (Survival); and

(k)      Article 17 (Miscellaneous Provisions).



<PAGE>
                                     - 51 -


                     ARTICLE 17 - MISCELLANEOUS PROVISIONS

17.1     GOVERNING LAW

This Agreement will be governed by and construed in accordance with the laws of
England, excluding any choice of law rules that may direct the application of
the laws of another jurisdiction. The parties acknowledge and agree that the
International Sale of Goods Act and the United Nations Convention on Contracts
for the International Sale of Goods shall have no application to this Agreement.

17.2 EXPEDITED ARBITRATION 

(a)      Notice. In the event of any dispute, controversy or claim arising
         under, out of or in connection with the subject matter of this
         Agreement or the breach, termination or invalidity of this Agreement
         (each, a "DISPUTE") that relates to:

         (i)      the matters described in Section 3.7(f);

         (ii)     disagreement as to whether Commercial Launch of the Product in
                  [*] as a whole, as set out in Section 5.2(b);

         (iii)    whether QLT has failed to diligently discharge its
                  commercialization obligations, as set out in Section 5.2(a);

         (iv)     confirmation of whether QLT has committed a Marketing Default,
                  as set out in Section 5.3(c);

         (v)      the inability of the parties to mutually agree on revised
                  financial terms in the event of a Marketing Default, as set
                  out in Section 5.3(d);

         (vi)     disagreement as to whether there exists any actual or
                  potential Cross-Over Use or Cross Pricing Risk or disagreement
                  with respect to mitigation measures, as set out in Section 6.7
                  (where the arbitrator shall be instructed to attempt to find a
                  mutually acceptable solution to avoid the Cross-Over Use or
                  Cross-Pricing Risk whilst giving reasonable protection to each
                  party's commercial interests);

         (vii)    the refusal of Xenova to grant its consent to a sub-license
                  proposed to be granted by QLT, as set out in Sections 8.4(c)
                  and 8.4(d); or

         (viii)   the inability of the parties to mutually agree on revised
                  financial terms in the event of certain early terminations, as
                  set out in Sections 16.7 and 16.8;

         the party asserting the claim (the "ASSERTING PARTY") shall first
         inform the other party, in writing, of the specific nature of the
         Dispute, the pertinent provisions of this Agreement and its proposed
         resolution.

(b)      Executive Resolution Efforts. Any Dispute shall first be submitted to
         the senior management of the parties for amicable resolution for a
         period of not less than [*] to resolve the Dispute prior to engaging in
         a formal Dispute resolution process. Any Dispute that cannot be settled
         amicably by the senior management of the parties shall be finally
         settled by arbitration in accordance with the clauses (b) to (c) of
         this Section 17.2 .

(c)      Submission to Arbitration. Each Dispute hereunder shall be submitted to
         arbitration in accordance with the Commercial Arbitration Rules of the
         American Arbitration Association (the "AAA") by a panel of one
         arbitrator (unless the parties agree otherwise) appointed by the AAA
         and who is knowledgeable as to the subject matter of the Dispute.

(d)      AAA Expedited and Optional Emergency Rules to Apply. The parties agree
         that the AAA Expedited Procedures and Optional Rules for Emergency
         Measures of Protection shall apply to all arbitral proceedings under
         this Section 17.2, notwithstanding the amount or complexity of any
         Dispute.

(e)      Procedures. The arbitrator shall have the right to order discovery as
         he or she deems appropriate, and to order injunctive relief and the
         payment of legal fees, costs and other 


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 52 -


         damages, excluding punitive damages. Judgement upon the award rendered
         by the arbitrator may be entered in any court having jurisdiction.

(f)      Place of Arbitration. Any arbitration conducted under this Section 17.2
         shall take place in New York City, New York, USA.

17.3     TRADITIONAL ARBITRATION

Except for:

(a)      applications for injunctions for the protection of the Xenova Patents,
         the QLT Patents, Program Information, Confidential Information or any
         other Intellectual Property of either party, which shall not be subject
         to arbitration, but shall be submitted to a court of competent
         jurisdiction for resolution; and

(b)      matters subject to expedited arbitration as set out in Section 17.2;

any Dispute shall be first submitted to the senior management of the parties for
amicable resolution for a period not less than [*] to resolve the Dispute prior
to engaging in a formal dispute resolution process. Any Dispute that cannot be
settled amicably by the senior management of the parties shall be finally
settled by arbitration in accordance with the procedures set out in Section
17.2, except that the Dispute shall be submitted to arbitration before a panel
of 3 arbitrators appointed by the AAA and the AAA Expedited Procedures and
Optional Rules for Emergency Measures of Protection referred to in Section
17.2(d) shall not apply. 

17.4 AMENDMENT

Neither party shall claim any amendment, modification, or release from any
provision hereof by mutual agreement, acknowledgement or acceptance or purchase
order forms or otherwise, unless in writing signed by an authorized
representative of each party.

17.5 ASSIGNMENT

No party shall assign this Agreement, in whole or in part, to any person without
the prior written consent of the other parties, such consent not to be
unreasonably withheld or delayed, provided that either party may assign and
transfer all of its rights and obligations under this Agreement without consent
of the other parties, 

(a)      to an Affiliate (with a provision for assignment back to the assigning
         party in the event the Affiliate ceases to be an Affiliate) ;

(b)      to a successor or assignee of all or substantially all of the assigning
         party's assets (including intellectual property rights) and business in
         the field of oncology (which must include all rights associated with
         the Drug and/or Product but, in the case of [*]) ("Oncology Assets"),
         provided that written notice is delivered to the other parties.
         However, a party shall not have any right to assign and transfer its
         Oncology Assets under this paragraph (b) if the [*]; or

(c)      to a successor or assignee of all or substantially all of the assigning
         party's assets;

Any permitted assignee shall assume all obligations of its assignor under this
Agreement. Unless:

(d)      such assignment has been consented to in writing by the other party; or

(e)      in the event of an assignment under paragraphs (b) and (c) hereof, the
         successor or assignee agrees to assume such obligations;

then no assignment shall relieve any party of responsibility for the performance
of any obligations arising from and after the effective date of such assignment
which such party has hereunder, and in any event the assignor shall remain bound
by the provisions of Article 7 and Sections 8.1 and 8.2. Any assignment in
violation of the foregoing shall be null and void. 


           * Material has been omitted and filed with the Commission

<PAGE>
                                     - 53 -


17.6     COMPLIANCE WITH LAWS

Each party will be responsible for assuring that all applicable rules, laws and
regulations are met in the performance of its duties
under this Agreement.

17.7     ENTIRE AGREEMENT

This Agreement, together with the Exhibits hereto, constitutes the entire
agreement and understanding between the parties with respect to the subject
matter hereof, and supersedes all written or oral prior agreements and
understandings between the parties with respect to the subject matter hereof,
including, without limitation, the Interim Agreement. In the event of conflict
between the terms and conditions of this Agreement and those of any Exhibit
attached to this Agreement, the terms and conditions of this Agreement shall
govern, unless the parties expressly provide that the conflicting term or
condition of such Exhibit or agreement shall supersede the corresponding term or
condition of this Agreement.

17.8     EXHIBITS

The Exhibits listed below and attached hereto shall be deemed to form an
integral part of this Agreement:

        Exhibit 1.1(p)             Description of XR9576

        Exhibit 1.1(q)             Drug Specification

        Exhibit 1.1(ccc)           Summary of Program Activities

        Exhibit 1.1(hhh)           Definition of Registration Package

        Exhibit 1.1(www)           List of Xenova Patents

        Exhibit 12.1(c)            Issues Relating to Xenova Patents

17.9     FORCE MAJEURE

If the performance of any part of this Agreement by either party, or of any
obligation under this Agreement, is prevented, restricted, interfered with or
delayed by reason of any cause beyond the reasonable control of the party liable
to perform, unless conclusive evidence to the contrary is provided, the party so
affected shall, upon giving written notice to the other party, be excused from
such performance to the extent of such prevention, restriction, interference or
delay, provided that the affected party shall use its reasonable commercial
efforts to avoid or remove such causes of non-performance and shall continue
performance with the utmost dispatch whenever the causes are removed. When such
circumstances arise, the parties shall discuss what, if any, modification of the
terms of this Agreement may be required in order to arrive at an equitable
solution.

17.10    FURTHER ASSURANCES

The parties hereby covenant and agree without the necessity of any further
consideration, to execute, acknowledge and deliver any and all such other
documents and take any such other action as may be reasonably necessary to carry
out the intent and purpose of this Agreement.

17.11    HEADINGS

The headings in this Agreement are solely for convenience of reference and shall
not be used for purposes of interpreting or construing the provisions hereof.

17.12    INJUNCTION

Each party agrees that the other parties may be irreparably damaged if any
provision of this Agreement is not performed in accordance with its terms.
Accordingly, each party will be entitled to apply for an injunction or
injunctions to prevent breaches of any of the provisions of this Agreement by
the other parties, without showing or proving any actual or threatened damage,
notwithstanding any rule of law or equity to the contrary, and may specifically
enforce such provisions by an action instituted in a court 



<PAGE>
                                     - 54 -


having jurisdiction. These specific remedies are in addition to any other remedy
to which the parties may be entitled at law or in equity.

17.13 INUREMENT

This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.

17.14    NOTICE

All notices, requests and other communications required or permitted to be given
hereunder or with respect hereto will be in writing, and may be given by: 

(a)      personal delivery;

(b)      registered first-class Canada or United Kingdom air mail, postage
         prepaid by the sender, return receipt requested;

(c)      overnight delivery service, charges prepaid by the sender; or

(d)      via facsimile (confirmed by delivery by one of the 3 methods stated
         above);

and, in each case, addressed to the other party at the address for such party as
set forth below, and will be effective one Business Day after receipt in the
case of deliveries under Sections 17.14(a), 17.14(c) or 17.14(d), and 5 Business
Days after mailing in the case of deliveries under Section 17.14(b).



If to QLT:                                        

         QLT Inc.                                 
         887 Great Northern Way                   
         Vancouver, British Columbia              
         Canada V5T 4T5                           
                                                  
         Attention:   Chief Executive Officer     

         Fax No.: +1 604 707-7001                 

                                                  

With a copy to:                                 
                                                
        Farris, Vaughan, Wills & Murphy         
        P.O. Box 10026, Pacific Centre South    
        Toronto Dominion Bank Tower             
        700 West Georgia Street, 26th Floor     
        Vancouver, British Columbia             
        CANADA V7Y 1B3                          
                                                
        Attention:R. Hector MacKay-Dunn         
                                                
        Fax No.:  +1 604 661-9349               


If to Xenova:

         Xenova Limited
         957 Buckingham Avenue
         Slough
         Berkshire, England
         UNITED KINGDOM SL1 4NL

         Attention:  Chief Executive Officer

         Fax No.:  +44 1753 706615


Any party may change its address at which notice is to be received by written
notice provided pursuant to this Section 17.14.

17.15    PRESS RELEASES/PUBLICITY

Each party agrees that it will not, without the prior written consent of the
other party:

(a)      originate any publicity, news release or public announcement, written
         or oral, whether to the public, the press, stockholders or otherwise,
         referring to the existence or to the terms of this 



<PAGE>
                                     - 55 -


         Agreement, including its existence, the subject matter to which it
         relates, the performance under it (including the progress of
         development activities in relation to the Drug in the Field in the
         Development Territory) or any of its specific terms and conditions,
         except for: 

         (i)      disclosures that are substantially the same as the disclosure
                  in the initial press releases; or

         (ii)     such announcements as, in the opinion of the counsel for the
                  party making such announcement, are required by law, including
                  Canadian, United Kingdom and United States of America
                  securities laws, rules or regulations, and the regulations of
                  the London Stock Exchange or the Toronto Stock Exchange, or
                  NASDAQ.

         If a party decides to make an announcement it believes to be required
         by law with respect to this Agreement, it will give the other party
         such notice as is reasonably practicable and an opportunity to comment
         upon the announcement; or

(b)      disclose the existence of this Agreement, any of the subject matter
         hereof, or any of the terms hereof to any Third Party, without the
         prior written consent of the other party, except as reasonably required
         for a party to perform its obligations under this Agreement or as
         otherwise provided in this Agreement.

17.16    RELATIONSHIP OF PARTIES

It is not the intent of QLT and Xenova to form any partnership or joint venture.
QLT and Xenova shall, in relation to their respective obligations hereunder, act
as independent contractors, and nothing in this Agreement shall be construed to
give either QLT or Xenova the power or authority to act for, bind or commit the
other in any way whatsoever.

17.17    RIGHTS AND REMEDIES

The rights and remedies available under this Agreement shall be cumulative and
not alternative and shall be in addition to and not a limitation of any rights
and remedies otherwise available to the parties at law or in equity, except as
expressly set out in this Agreement.

17.18    SEVERABILITY

If any term or provision of this Agreement shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other term or provision hereof, and this
Agreement shall be interpreted and construed as if such term or provision, to
the extent the same shall have been held to be invalid, illegal or
unenforceable, had never been contained herein.

17.19    WAIVER

No waiver or modification of any of the terms of this Agreement shall be valid
unless in writing and signed by an authorized representative of each of the
parties hereto. Failure by any party to enforce any rights under this Agreement
shall not be construed as a waiver of such rights, nor shall a waiver by any
party in one or more instances be construed as constituting a continuing waiver
or as a waiver in other instances.




<PAGE>
                                     - 56 -





17.20    WORDING

Wherever the singular or masculine form is used in this Agreement, it will be
construed as the plural or feminine or neuter form, as the case may be, and vice
versa, as the context or the parties require. The parties agree that whenever
the phrase "including" is used in this Agreement that it shall mean "including,
without limitation".

17.21    THIRD PARTY RIGHTS

Each of the persons identified in Sections 15.1 and 15.2 may in his own right
enforce the provisions of those respective Sections. Except as provided in the
previous sentence of this Section 17.21, this Agreement is not made for the
benefit of, nor shall any of its provisions be enforceable by, any person other
than the parties to this Agreement and their respective successors and permitted
assignees.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.


QLT INC.                                  XENOVA LIMITED
by its authorized signatory:              by its authorized signatory:



By:    __________________________         By:    __________________________
       Name:                                     Name:
       Title:                                    Title:






<PAGE>


                                 EXHIBIT 1.1(p)
                              DESCRIPTION OF XR9576


[*]

           * Material has been omitted and filed with the Commission

<PAGE>

                                     - 2 -



                                 EXHIBIT 1.1(q)
                               DRUG SPECIFICATION


As set out in [*] as delivered by QLT to Xenova.



           * Material has been omitted and filed with the Commission

<PAGE>


                                EXHIBIT 1.1(CCC)
                          SUMMARY OF PROGRAM ACTIVITIES


The following summarizes the proposed Development Plan for the Product. This
Development Plan as it relates to the primary indication is subject to change at
the discretion of the Development Committee or as a result of any requirements
of the FDA.

Primary (Initial) Indication to be Pursued

- First line therapy of advanced NSCLC (Stage IIIb/IV NSCLC) in combination with
chemotherapy.

Clinical Development

QLT will conduct two international [*] randomized placebo-controlled trials of
chemotherapy plus placebo versus chemotherapy plus the Product, as follows:

- Each study to investigate a different chemotherapy regimen ([*]).

- European involvement will include a minimum of [*] European sites for the two
combined trials in [*] countries.

- Approximately [*] patients per trial (a total of [*] patients) for the two
combined trials.

- [*].

CMC

- Establish product monographs for the Drug and the Product.

- Produce final validated form of the Product in [*].

- Establish scaled up manufacturing process capable of supplying commercial
requirements.

Preclinical Toxicology

- Perform additional toxicology studies required to file NDA ([*] briefing
document).

Regulatory

- [*].

- Manage all ongoing interactions with FDA during the Program.

- Assemble NDA filing to take through FDA review to approval.

- Provide NDA dossier to support Xenova's registration in Europe.

Other Studies in the Primary Indication and Other Indications

- [*].

- Any additional studies required by the FDA for registration in the primary
indication will be conducted after a [*] decision.

- Other additional studies in the primary or subsequent indications will be
reviewed and approved, if appropriate, by the Development Committee before
commencement.



           * Material has been omitted and filed with the Commission

<PAGE>


                                EXHIBIT 1.1(hhh)
                              REGISTRATION PACKAGE




(a)  Common Technical Document Structure:


MODULE 1:  ADMINISTRATIVE INFORMATION

1.       MODULE 1 TABLE OF CONTENTS

2.       DOCUMENTS SPECIFIC TO EACH REGION (APPLICATION FORMS AND PRESCRIBING
         INFORMATION)

MODULE 2:  CTD SUMMARIES

1.       OVERALL CTD TABLE OF CONTENTS

2.       INTRODUCTION

3.       QUALITY OVERALL SUMMARY

4.       NONCLINICAL OVERVIEW

5.       CLINICAL OVERVIEW

6.       NONCLINICAL SUMMARY

7.       PHARMACOLOGY

(A)      WRITTEN SUMMARY

(B)      TABULATED SUMMARY

8.       PHARMACOKINETICS

(A)      WRITTEN SUMMARY

(B)      TABULATED SUMMARY

9.       TOXICOLOGY

(A)      WRITTEN SUMMARY

(B)      TABULATED SUMMARY

10.      CLINICAL SUMMARY

(A)      SUMMARY OF BIOPHARMACEUTICS AND ASSOCIATED ANALYTICAL METHODS

(B)      SUMMARY OF CLINICAL PHARMACOLOGY STUDIES

(C)      SUMMARY OF CLINICAL EFFICACY

(D)      SUMMARY OF CLINICAL SAFETY

(E)      SYNOPSES INDIVIDUAL STUDIES

MODULE 3:  QUALITY

1.       TABLE OF CONTENTS

2.       BODY OF DATA

3.       KEY LITERATURE REFERENCES


MODULE 4:  NONCLINICAL STUDY REPORTS

1.       TABLE OF CONTENTS

2.       STUDY REPORTS

3.       LITERATURE REFERENCES


MODULE 5:  CLINICAL STUDY REPORTS

1.       TABLE OF CONTENTS OF CLINICAL STUDY REPORTS

2.       TABULAR LISTINGS OF ALL CLINICAL STUDIES

3.       CLINICAL STUDY REPORTS

4.       LITERATURE REFERENCES




<PAGE>

                                     - 2 -

(b)      List of additional studies required by the FDA prior to NDA submission
         for the Product ([*]):

     1.  NON-CLINICAL: The following table lists the planned non-clinical
         studies that have been identified by Xenova as necessary prior to a NDA
         submission. These studies were presented to the FDA in the briefing
         document that was sent prior to the end of Phase II meeting. It is
         anticipated that these studies would not need to be initiated until the
         results from the [*] are known.

         STUDY
         -----------------------------------------------------------------------
         -----------------------------------------------------------------------
         [*]
         -----------------------------------------------------------------------
         -----------------------------------------------------------------------
         [*]
         -----------------------------------------------------------------------
         -----------------------------------------------------------------------
         [*]
         -----------------------------------------------------------------------
         -----------------------------------------------------------------------
         [*]
         -----------------------------------------------------------------------
         -----------------------------------------------------------------------
         [*]
         -----------------------------------------------------------------------
         -----------------------------------------------------------------------
         -----------------------------------------------------------------------




       2. CLINICAL STUDIES: In the clinical section of the minutes to the end
          of the Phase II meeting with the FDA, the FDA requested [*].









           * Material has been omitted and filed with the Commission

<PAGE>


                                EXHIBIT 1.1(www)
                             LIST OF XENOVA PATENTS


[*].

[*].

[*]





           * Material has been omitted and filed with the Commission

<PAGE>



                                 EXHIBIT 12.1(c)
                        ISSUES RELATING TO XENOVA PATENTS


(1)      All matters that would be shown by searches of publicly available
         patent prosecution files in respect of Xenova's patents covering the
         Drug, held at Patent Offices in the Territory, are disclosed or deemed
         to be disclosed to QLT.

(2)      Xenova has not conducted searches or inquiries in relation to the
         existence of Third Party patents or other proprietary rights, and makes
         no representation and gives no warranty in relation to any Third Party
         patents and other proprietary rights not known to it.

(3)      [*].








--------


           * Material has been omitted and filed with the Commission


<PAGE>
                                                                   EXHIBIT 10.77
                              EMPLOYMENT AGREEMENT

        This Employment Agreement dated for reference December 18, 2001.

BETWEEN:

          QLT INC., having an address of 887 Great Northern Way, Vancouver,
          British Columbia, V5T 4T5,

          ("QLT" or the "COMPANY")

AND:

          PAUL J. HASTINGS, having an address of 61 Hartford, San Francisco,
          California, U.S.A, 94114, 

          ("MR. HASTINGS")

WHEREAS:

A.   QLT is a world leader in the development and commercialization of
     proprietary pharmaceutical products for use in photodynamic therapy, a
     field of medicine utilizing light-activated drugs in the treatment of
     disease and has other active development programs ongoing in areas outside
     of photodynamic therapy;

B.   QLT wishes to offer to Mr. Hastings, and Mr. Hastings wishes to accept,
     employment with QLT as President and Chief Executive Officer of QLT;

C.   QLT and Mr. Hastings wish to enter into this Agreement to set out the terms
     and conditions of Mr. Hastings' employment with QLT; and

D.   The employment of Mr. Hastings by QLT is subject to Mr. Hastings obtaining
     and maintaining the permission of Canada Immigration to work in Canada in
     this position. QLT will reimburse Mr. Hastings for the costs associated
     with obtaining employment and permanent resident status in Canada.


     NOW THEREFORE
 in consideration of $10.00, the promises made by each party
to the other as set out in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which the parties acknowledge and
agree, QLT and Mr. Hastings agree as follows:

1.   POSITION AND DUTIES

1.1  POSITION - Effective the 17th day of February, 2002 (the "COMMENCEMENT
     DATE"), QLT will employ Mr. Hastings in the position of President and Chief
     Executive Officer, and Mr. Hastings agrees to accept employment with QLT in
     this position, subject to the terms and conditions of this Agreement.

1.2  DUTIES, REPORTING AND EFFORTS - In the performance of his duties as
     President and Chief Executive Officer, Mr. Hastings will:



<PAGE>
                                      - 2 -


     (a)  OVERALL RESPONSIBILITIES - Have the responsibilities commensurate with
          the position of President and Chief Executive Officer, including those
          set out in SCHEDULE A to this Agreement and with the goal of achieving
          QLT's overall long-term strategic objectives.

     (b)  REPORT - Report, as and when required, to the Board of Directors of
          QLT (the "BOARD").

     (c)  BEST EFFORTS - Use his best efforts, industry and knowledge to improve
          and increase QLT's business, to comply with all of QLT's rules,
          regulations, policies and procedures, as established from time to time
          and to ensure that QLT is at all times in compliance with applicable
          provincial, state, federal and other governing statutes, policies and
          regulations.

     (d)  WORKING DAY - Devote the whole of his working day attention and
          energies to the business and affairs of QLT.

2.   COMPENSATION

2.1  ANNUAL COMPENSATION - In return for his services under this Agreement, QLT
     agrees to pay or otherwise provide the following total annual compensation
     to Mr. Hastings:

     (a)  BASE SALARY - A base annual salary in the amount of US$500,000, in 24
          equal installments payable semi-monthly in arrears, subject to
          periodic reviews and increases at the discretion of the Board.

     (b)  BENEFIT PLANS - Coverage for Mr. Hastings and his eligible dependents
          under any employee benefit plans provided by/through QLT to its
          employees, subject to:

          I.   each plan's terms for eligibility,

          II.  Mr. Hastings taking the necessary steps to ensure effective
               enrollment or registration under each plan, and

          III. deductions of applicable employee contributions for the premiums
               of each plan.

          As at the date of this Agreement, the employee benefit plans provided
          by/through QLT to its employees include life insurance, accidental
          death and dismemberment insurance, dependent life insurance,
          vision-care insurance, health insurance (including basic British
          Columbia medical services plan coverage and extended health coverage),
          dental insurance and short and long term disability insurance. QLT and
          Mr. Hastings agree that the employee benefit plans provided by/through
          QLT to its employees may change from time to time.

     (c)  EXPENSE REIMBURSEMENT - Reimbursement, in accordance with QLT's Policy
          and Procedures Manual (as amended from time to time), of all
          reasonable business related promotion, entertainment and/or travel
          expenses incurred by Mr. Hastings, subject to him maintaining proper
          accounts and providing documentation for these expenses upon request.

     (d)  VACATION -Mr. Hastings is entitled to four weeks' paid vacation during
          each calendar year, including the first, of his employment and
          pro-rated for any partial calendar year of employment which may be
          increased from time to time in accordance with QLT's standard vacation
          policy. As per QLT's Policy and Procedures Manual (as amended from
          time to time), unless agreed to in writing by QLT:

          I.   all vacation must be taken within one year of the year in which
               it is earned by Mr. Hastings, and



<PAGE>
                                      - 3 -


          II.  except as set out in clause I above, vacation entitlement will
               not be cumulative from year to year.

     (e)  RRSP CONTRIBUTIONS - Provided the conditions set out below have been
          satisfied, no later than February 28 of the year following the year in
          which the income is earned by Mr. Hastings (the "INCOME YEAR"), QLT
          will make a contribution of up to 7% of Mr. Hastings' annual base
          salary for the Income Year to Mr. Hastings' Canadian Registered
          Retired Savings Plan ("RRSP"). The contribution to Mr. Hastings' RRSP
          as set out above is subject the following conditions:

          I.   the maximum contribution to be made by QLT to Mr. Hastings' RRSP
               is 50% of the annual limit for Registered Retirement Savings
               Plans as established by Canada Customs & Revenue Agency for the
               Income Year,

          II.  Mr. Hastings must have contributed an equal amount into his RRSP,
               and

          III. Mr. Hastings is still actively employed by QLT when the matching
               contribution would otherwise be made.

     (f)  CASH INCENTIVE COMPENSATION PLAN - Mr. Hastings will be eligible to
          participate in the Cash Incentive Compensation Plan offered by QLT to
          its senior executives in accordance with the terms of such Plan, as
          amended from time to time by the Board. Mr. Hastings will be eligible
          to receive each year as a lump sum payment an amount up to 50% of his
          base salary under the Cash Incentive Compensation Plan. The amount of
          that payment will be determined at the sole discretion of the
          Executive Compensation Committee of the Board annually following the
          completion of each fiscal year of QLT and will be based on the
          performance of Mr. Hastings and QLT relative to pre-set corporate and
          individual objectives and milestones to have been achieved in the
          immediately preceding fiscal year. Those goals and milestones will be
          set for each year by the Board after discussion with Mr. Hastings. For
          greater certainty, Mr. Hastings will not be eligible to receive any
          such amount in 2002 for the preceding fiscal year but will be eligible
          to receive that incentive payment in 2003 and subsequent years, based
          on his employment in 2002 and in subsequent years.

     (g)  ANNUAL STOCK OPTIONS - Mr. Hastings will be eligible for participation
          in QLT's Incentive Stock Option Plans, in accordance with the terms of
          the plan in effect at the time of the stock option offer. QLT's
          management responsible for the Stock Option Plan will recommend to the
          Board each year during the term of this Agreement commencing in 2003
          to approve options in that year for Mr. Hastings to purchase an
          aggregate of 100,000 common shares of QLT, which amount may be reduced
          or increased on a year-to-year basis at the sole discretion of the
          Board. The grant of options may, at the sole discretion of the Board,
          be spread over one or more separate grants during the course of each
          year in a manner consistent with QLT's stock option practices and
          policies then in effect.

     (h)  SIGNING STOCK OPTIONS - Conditional on Mr. Hastings entering into this
          Agreement, the Board has approved and will grant the option for Mr.
          Hastings to purchase 500,000 common shares of QLT plus an additional
          option to be granted at a date in April, 2002 to be set by QLT for Mr.
          Hastings to purchase 100,000 common shares of QLT. The options will be
          subject to the terms and conditions set out in QLT's current Stock
          Option Incentive Plan, have a five-year term from the date of grant
          and will vest monthly in equal numbers over three years. The exercise
          price of these signing options will be determined by the closing price
          on the Toronto Stock Exchange on the day prior to granting. Stock
          options may not be exercised until Mr. Hastings has successfully
          completed six months' employment with QLT from the Commencement Date
          and the grant will be conditional upon Mr. Hastings not having
          provided a Resignation Notice (as 


<PAGE>
                                     - 4 -


          later defined) nor having received a written notice of termination
          from QLT on or before the end of that six month period.

     (i)  SIGNING BONUS - QLT will pay to Mr. Hastings an amount equal to
          US$25,000 as a signing bonus promptly following the Commencement Date.

2.2  HOME RELOCATION AND HOME RELOCATION LOAN - The Company and Mr. Hastings
     agree to the terms of relocation assistance, relocation repayment, and
     relocation assistance upon termination by QLT as set out in SCHEDULES B and
     C to this Agreement.

2.3  COMPLIANCE WITH INSIDER TRADING GUIDELINES AND RESTRICTIONS - As a result
     of his position as President and Chief Executive Officer, Mr Hastings is
     subject to insider trading regulations and restrictions and is required to
     file insider reports disclosing the grant of any options as well as the
     purchase and sale of any shares in the capital of QLT. QLT publishes
     trading guidelines and restrictions for its employees, officers and
     directors as are considered by the Board, in its discretion, prudent and
     necessary for a publicly listed company. It is a term of Mr. Hastings'
     employment as the Chief Executive Officer of QLT that he comply with such
     guidelines and restrictions, as may be amended from time to time.

3.   RESIGNATION

3.1  RESIGNATION - Mr. Hastings may resign from his employment with QLT by
     giving QLT 90 days prior written notice (the "RESIGNATION NOTICE") of the
     effective date of his resignation. On receiving a Resignation Notice, QLT
     may elect to provide the following payments and benefits in lieu of notice
     to Mr. Hastings and require him to cease providing employment services and
     leave the premises forthwith:

     (a)  BASE SALARY - Base salary owing to Mr. Hastings for the 90-day notice
          period.

     (b)  BENEFITS - Except as set out below in this subparagraph 3.1(b), for
          the 90-day notice period all employee benefit plan coverage enjoyed by
          Mr. Hastings and his eligible dependents prior to the date of the
          Resignation Notice. Mr. Hastings acknowledges and agrees that accruals
          under any pension plan (if any) and short and long term disability
          plans provided through QLT will not be continued beyond the last day
          that Mr. Hastings is in active full-time employment (the "LAST ACTIVE
          DAY").

     (c)  EXPENSE REIMBURSEMENT - Reimbursement (in accordance with QLT's Policy
          and Procedures Manual, as amended from time to time) of all reasonable
          business related promotion, entertainment and/or travel expenses
          incurred by Mr. Hastings prior to his Last Active Day, subject to the
          expense reimbursement provisions set out in subparagraph 2.1(c).

     (d)  VACATION PAY - Payment in respect of accrued but unpaid vacation pay
          owing to Mr. Hastings as at the expiry of the 90-day notice period.

     (e)  PRORATED RRSP CONTRIBUTION - A prorated contribution to Mr. Hastings'
          RRSP, the pro-ration to be with respect to the portion of the current
          calendar year, up to and including the 90-day notice period, and the
          contribution to be subject to the conditions set out in subparagraph
          2.1(e), except 2.1(e)(III).



<PAGE>
                                     - 5 -


3.2  OTHERS - In the event of resignation of Mr. Hastings as set out in
     paragraph 3.1, the parties agree:

     (a)  NO BONUS - Mr. Hastings will be entitled to receive payments owing or
          that become owing under the Cash Incentive Compensation Plan for the
          year preceding the year in which the effective date of the resignation
          occurs but Mr. Hastings will have no entitlement to participate in
          QLT's Cash Incentive Compensation Plan for the year in which the
          effective date of resignation occurs; and

     (b)  STOCK OPTION PLAN - Mr. Hastings' participation in any stock option
          plan offered by QLT to its employees will be in accordance with the
          terms of the plan in effect at the time of the stock option offer(s)
          to Mr. Hastings.

4.        RETIREMENT

4.1  RETIREMENT - Effective the date of retirement (as defined in QLT's Policy
     and Procedures Manual, as amended from time to time) of Mr. Hastings from
     active employment with QLT, the parties agree that:

     (a)  BONUS - The Company will make a prorated payment to Mr. Hastings in
          respect of his entitlement to participate in QLT's Cash Incentive
          Compensation Plan, the pro-ration to be with respect to the portion of
          the current calendar year worked by Mr. Hastings and the entitlement
          at the maximum level Mr. Hastings would have otherwise been eligible
          to receive in the current calendar year.

     (b)  EXPENSE REIMBURSEMENT - Reimbursement (in accordance with QLT's Policy
          and Procedures Manual, as amended from time to time) of all reasonable
          business related promotion, entertainment and/or travel expenses
          incurred by Mr. Hastings prior to his date of retirement, subject to
          the expense reimbursement provisions set out in subparagraph 2.1(c).

     (c)  VACATION PAY - QLT will pay Mr. Hastings accrued but unpaid vacation
          owing to Mr. Hastings as at the retirement date.

     (d)  PRORATED RRSP CONTRIBUTION - The Company will make a prorated
          contribution to Mr. Hastings' RRSP, the pro-ration to be with respect
          to the portion of the current calendar year worked by Mr. Hastings and
          the contribution to be subject to the conditions set out in
          subparagraph 2.1(e), except 2.1(e)(III).

     (e)  STOCK OPTIONS - Mr. Hastings' participation in any stock option plan
          offered by QLT to its employees will be in accordance with and subject
          to the terms of the plan in effect at the time of the stock option
          offer(s) to Mr. Hastings, including conditions which relate to vesting
          and exercise of stock options on retirement.

     (f)  THIS AGREEMENT - Subject to the provisions of paragraph 10.6, both
          parties' rights and obligations under this Agreement will terminate
          without further notice or action by either party.

5.        TERMINATION

5.1  TERMINATION FOR CAUSE - QLT reserves the right to immediately terminate Mr.
     Hastings' employment for cause. Should Mr. Hastings be terminated for
     cause, he will not be entitled to any advance notice of termination or pay
     in lieu thereof.



<PAGE>
                                     - 6 -


5.2  TERMINATION OTHER THAN FOR CAUSE - QLT reserves the right to terminate Mr.
     Hastings' employment at any time without cause. However, if QLT terminates
     Mr. Hastings' employment for:

     (a)  any reason other than cause, or

     (b)  any reason not covered by a separate Change in Control Letter
          Agreement dated of even date between QLT and Mr. Hastings,

     then, except in the case of Mr. Hastings becoming completely disabled
     (which is provided for in paragraph 5.7) and subject to the provisions set
     forth below, Mr. Hastings will be entitled to receive notice, pay and/or
     benefits (or any combination of notice, pay and/or benefits) as more
     particularly set out in paragraph 5.3.

5.3  SEVERANCE NOTICE AND PAY - In the event QLT terminates Mr. Hastings'
     employment as set out in paragraph 5.2, Mr. Hastings will be entitled to:

     (a)  NOTICE - advance written notice of termination ("SEVERANCE NOTICE"),
          or pay in lieu thereof ("SEVERANCE PAY"), or any combination of
          Severance Notice and Severance Pay, equal to 24 months' Severance
          Notice, or Severance Pay in lieu of Severance Notice (the "SEVERANCE
          NOTICE PERIOD"). Mr. Hastings acknowledges and agrees that Severance
          Pay is in respect of (i) base salary and (ii) an amount equal to Mr.
          Hastings' entitlement under the Cash Incentive Compensation Plan over
          the Severance Notice Period pro-rated for any partial years included
          in the Severance Notice Period and will be made on a bi-weekly or
          monthly basis, at QLT's discretion. Mr. Hastings' entitlement under
          the Cash Incentive Compensation Plan payable under (ii) above will be
          calculated at the target level of 50% referred to in subparagraph
          2.1(f) that Mr. Hastings would have otherwise been eligible to receive
          for the year in which the termination occurs.

     (b)  BENEFITS - except as set out below, for 30 days after Mr. Hastings'
          Last Active Day, all employee benefit plan coverage enjoyed by Mr.
          Hastings and his dependents prior to the date of termination.
          Thereafter, and in lieu of employee benefit plan coverage, Mr.
          Hastings will receive compensation ("BENEFITS COMPENSATION") in the
          amount of 10% of his base salary for the balance of his Severance
          Notice period. Notwithstanding the foregoing, Mr. Hastings
          acknowledges and agrees that accruals under any pension plan (if any)
          and short and long term disability plans provided through QLT will not
          be continued beyond Mr. Hastings's Last Active Day.

     (c)  OUT PLACEMENT COUNSELING - in the event QLT terminates Mr. Hastings'
          employment as set out in paragraph 5.2, QLT will pay to a qualified
          out placement counseling service (to be agreed to by Mr. Hastings and
          QLT) a maximum of Cdn$5,000 for assistance rendered to Mr. Hastings in
          the year following termination in seeking alternative employment.

     (d)  OTHER COMPENSATION -the parties further agree as follows:

          I.   the Company will reimburse (in accordance with QLT's Policy and
               Procedures Manual, as amended from time to time) Mr. Hastings for
               all reasonable business related promotion, entertainment and/or
               travel expenses incurred by Mr. Hastings prior to the date of
               termination, subject to the expense reimbursement provisions set
               out in subparagraph 2.1(c).

          II.  the Company will make a payment to Mr. Hastings in respect of his
               accrued but unpaid vacation pay to the date of termination.



<PAGE>
                                     - 7 -


          III. the Company will make a prorated contribution to Mr. Hastings'
               RRSP, the pro-ration to be with respect to the portion of the
               current calendar year worked by Mr. Hastings and for the
               Severance Notice Period and the contribution to be subject to the
               conditions set out in subparagraph 2.1(e), except 2.1(e)(III).

          IV.  in addition to the payments under subparagraph 5.3(a), the
               Company will make a prorated payment to Mr. Hastings in respect
               of his entitlement to participate in QLT's Cash Incentive
               Compensation Plan, the pro-ration to be with respect to the
               portion of the current calendar year worked by Mr. Hastings and
               the entitlement at the target level of 50% referred to in
               subparagraph 2(f) that Mr. Hastings would have otherwise been
               eligible to receive in the current calendar year.

          V.   Mr. Hastings' participation in any stock option plan offered by
               QLT to its employees will be in accordance with the terms of the
               plan in effect at the time of the stock option offer(s) to Mr.
               Hastings.

5.4  ACKNOWLEDGEMENT - Mr. Hastings acknowledges and agrees that in the event
     QLT terminates Mr. Hastings' employment as set out in paragraph 5.2, in
     providing:

     (a)  The Severance Notice or Severance Pay, or any combination thereof;

     (b)  The Benefits Compensation;

     (c)  Out placement counseling service as more particularly set out in
          subparagraph 5.3(c); and

     (d)  The other compensation set out in subparagraph 5.3(d);

     (e)  All compensation owing to the date of termination;

     as set out in paragraph 5.10, QLT will have no further obligations,
     statutory or otherwise, to Mr. Hastings in respect of this Agreement and
     Mr. Hastings' employment under this Agreement.

5.5  FUNDAMENTAL BREACH - Mr. Hastings acknowledges and agrees that material
     violation any of the restrictions set out in Section 7 or paragraph 8.1,
     will be deemed to be a fundamental breach of this Agreement and QLT's
     obligations to pay Severance Pay, Benefits Compensation and other
     compensation as set out in paragraph 5.3 will cease immediately.

5.6  NO DUPLICATION - In the event that the Severance Pay provisions of this
     Agreement and the payment provisions of the Change in Control Letter
     Agreement are both applicable, Mr. Hastings agrees that he will give
     written notice to QLT with respect to which agreement he wishes to be paid
     out under and that he is not entitled to severance pay under both
     agreements.

5.7  TERMINATION DUE TO INABILITY TO ACT

     (a)  TERMINATION - QLT may immediately terminate this Agreement by giving
          written notice to Mr. Hastings if he becomes completely disabled (as
          defined below) to the extent that he cannot perform his duties under
          this Agreement either:

          I.   for a period exceeding six consecutive months, or

          II.  for a period of 180 days (not necessarily consecutive) occurring
               during any period of 365 consecutive days,



<PAGE>
                                     - 8 -


          and no other reasonable accommodation can be reached between QLT and
          Mr. Hastings. Notwithstanding the foregoing, QLT agrees that it will
          not terminate Mr. Hastings pursuant to this provision unless and until
          Mr. Hastings has been accepted by the insurer for ongoing long-term
          disability payments or, alternatively, has been ruled after all
          available appeals ineligible for such payments.

     (b)  PAYMENTS - In the event of termination of Mr. Hastings' employment
          with QLT pursuant to the provisions of this paragraph 5.7, QLT agrees
          to pay to Mr. Hastings Severance Pay, Benefits Compensation and other
          compensation as set out in paragraph 5.3.

     (c)  DEFINITION - The term "completely disabled" as used in this paragraph
          5.7 will mean the inability of Mr. Hastings to perform the essential
          functions of his position under this Agreement by reason of any
          incapacity, physical or mental, which the Board, based upon medical
          advice or an opinion provided by a licensed physician acceptable to
          the Board, determines to keep Mr. Hastings from satisfactorily
          performing any and all essential functions of his position for QLT
          during the foreseeable future.

5.8  DEATH - Except as set out below, effective the date of death of Mr.
     Hastings (the "DATE OF DEATH"), this Agreement and both parties' rights and
     obligations under this Agreement will terminate without further notice or
     action by either party. QLT will fulfill any obligations of QLT under the
     group life insurance plan or any other applicable benefit plan of QLT.
     Within 30 days after the Date of Death (and the automatic concurrent
     termination of this Agreement), QLT will pay the following amounts to Mr.
     Hastings' estate:

(a)  BASE SALARY - Base salary owing to Mr. Hastings up to his Date of Death.

(b)  PAYMENT IN LIEU OF BENEFITS - In lieu of employee benefit coverage for his
     eligible dependents after his Date of Death (except for group life
     insurance and other benefits payable as a result of the death), a payment
     in the amount of 10% of his annual base salary in effect at his Date of
     Death.

(c)  EXPENSE REIMBURSEMENT - Reimbursement (in accordance with QLT's Policy and
     Procedures Manual, as amended from time to time) of all reasonable business
     related promotion, entertainment and/or travel expenses incurred by Mr.
     Hastings prior to his Date of Death, subject to the expense reimbursement
     provisions set out in subparagraph 2.1(c).

(d)  VACATION PAY - Payment in respect of accrued but unpaid vacation pay owing
     to Mr. Hastings as at his Date of Death.

(e)  RRSP CONTRIBUTION - A prorated contribution to Mr. Hastings' RRSP, the
     pro-ration to be with respect to the portion of the current calendar year
     worked by Mr. Hastings and the contribution to be subject to the conditions
     set out in subparagraph 2.1(e), except 2.1(e)(III).

(f)  BONUS - A prorated payment to Mr. Hastings in respect of his entitlement to
     participate in QLT's Cash Incentive Compensation Plan, the pro-ration to be
     with respect to the portion of the current calendar year worked by Mr.
     Hastings and the entitlement to be at the maximum level Mr. Hastings would
     have otherwise been eligible to receive in the current calendar year.

     After his Date of Death, Mr. Hastings' participation and/or entitlement
     under any stock option plan offered by QLT to its employees will be in
     accordance with the terms of the plan in effect at the time of the stock
     option offer(s) to Mr. Hastings.



<PAGE>
                                     - 9 -


5.10 ACKNOWLEDGEMENT - Mr. Hastings expressly acknowledges and agrees that he
     will not be entitled by reason of this Agreement, his employment with QLT
     or any termination of such employment, to any renumeration, compensation or
     benefits other than as expressly set forth in this Agreement.

6A.  RESIGNATION FROM BOARD ON RESIGNATION OR TERMINATION

6A.1 RESIGNATION FROM BOARD POSITIONS UPON RESIGNATION OR TERMINATION - In the
     event Mr. Hastings resigns from his employment with QLT or upon receiving
     written notice of termination from QLT under paragraphs 5.1, 5.2 or 5.7,
     then the following will apply:

     (a)  RESIGNATION - in the case of a resignation, Mr. Hastings will
          immediately tender his resignation from the Board of QLT and its
          subsidiaries and affiliates. For this purpose, the Resignation Notice
          will be deemed to constitute the resignation of Mr. Hastings from the
          Board of QLT and its affiliates effective, in QLT's discretion, on or
          before the expiry of the 90 day notice period set out in paragraph
          3.1; or

     (b)  TERMINATION - upon receiving written notice of termination from QLT
          under paragraphs 5.1, 5.2 or 5.7, Mr. Hastings will immediately tender
          his resignation from the Board of QLT and its subsidiaries and
          affiliates. For this purpose, written notice of termination from QLT
          will be deemed to constitute the resignation of Mr. Hastings from the
          Board of QLT and its subsidiaries and affiliates effective on the date
          Mr. Hastings receives written notice of termination from QLT.

6.   CONFLICT OF INTEREST

6.1  AVOID CONFLICT OF INTEREST - Except as set out below, during the term of
     his employment with QLT, Mr. Hastings agrees to conduct himself at all
     times so as to avoid any real or apparent conflict of interest with the
     activities, policies, operations and interests of QLT. To avoid improper
     appearances, Mr. Hastings agrees that he will not accept any financial
     compensation of any kind, nor any special discount, loan or favour from
     persons, corporations or organizations having dealings or potential
     dealings with QLT, either as a customer or a supplier or a co-venturer.
     This does not prevent Mr. Hastings from accepting customary or ordinary
     accommodation of modest value such as meals. QLT and Mr. Hastings
     acknowledge and agree that from time to time the Board may consent in
     writing to activities by Mr. Hastings which might otherwise appear to be a
     real or apparent conflict of interest.

6.2  NO FINANCIAL ADVANTAGE - During the term of his employment with QLT, Mr.
     Hastings agrees that he will not disclose or take financial advantage of or
     benefit financially from or allow or permit any member of his immediate
     family to receive financial advantage or benefit financially from
     information that is obtained in the course of his employment related duties
     and responsibilities unless the disclosure is required by law or the
     information is generally available to the public.

6.3  COMPLY WITH POLICIES - During the term of his employment with QLT, Mr.
     Hastings agrees to comply with all written policies issued by QLT dealing
     with conflicts of interest.

6.4  BREACH EQUALS CAUSE - Mr. Hastings acknowledges and agrees that a material
     breach by him of the provisions of this Section 6 will be cause for
     immediate termination by QLT of his employment with QLT.

7.       CONFIDENTIALITY



<PAGE>
                                     - 10 -


7.1  INFORMATION HELD IN TRUST - Mr. Hastings acknowledges and agrees that all
     business and trade secrets, confidential information and confidential
     knowledge which Mr. Hastings acquires during his employment with QLT
     relating to the business and affairs of QLT or to technology, systems,
     programs, ideas, products or services which have been or are being
     developed or utilized by QLT, or in which QLT is or may become interested
     (collectively, "CONFIDENTIAL INFORMATION"), will for all purposes and at
     all times, both during the term of Mr. Hastings' employment with QLT and at
     all times thereafter, be the sole property of QLT and be held by Mr.
     Hastings in trust for the exclusive benefit of QLT.

7.2  NON DISCLOSURE - Mr. Hastings acknowledges and agrees that both during the
     term of his employment with QLT and at all times thereafter, without the
     express or implied consent of QLT, Mr. Hastings will not:

     (a)  DISCLOSE - except as required by law, disclose to any company, firm or
          person, other than QLT, its directors and officers and its employees
          on a need to know basis, any of the private affairs of QLT or any
          Confidential Information of QLT or of third parties to whom QLT owes
          an obligation of confidentiality; or

     (b)  USE - Use or copy any Confidential Information that he may acquire
          with respect to QLT's affairs for his own purposes or for any purposes
          other than those of QLT.

7.3  INTELLECTUAL PROPERTY RIGHTS

     (a)  DISCLOSE INVENTIONS - Mr. Hastings agrees to promptly disclose to QLT
          any and all ideas, developments, designs, articles, inventions,
          improvements, discoveries, machines, appliances, processes, methods,
          products or the like that Mr. Hastings may invent, conceive, create,
          design, develop, prepare, author, produce or reduce to practice,
          either solely or jointly with others, in the course of his employment,
          or involvement in any capacity, with QLT (collectively, "INVENTIONS").

     (b)  INVENTIONS ARE QLT PROPERTY - All Inventions and all other work of Mr.
          Hastings in the course of his employment, or involvement in any
          capacity, with QLT will at all times and for all purposes be the
          property of QLT for QLT to use, alter, vary, adapt and exploit as it
          will see fit, and will be acquired or held by Mr. Hastings in a
          fiduciary capacity solely for the benefit of QLT.

     (c)  ADDITIONAL REQUIREMENTS - Mr. Hastings agrees to:

          I.   Treat all information with respect to Inventions as Confidential
               Information unless the information is generally available to the
               public.

          II.  Keep complete and accurate records of Inventions, which records
               will be the property of QLT and copies of which records will be
               maintained at the premises of QLT.

          III. Execute all assignments and other documents required to assign
               and transfer to QLT (or such other persons as QLT may direct) all
               right, title and interest in and to the Inventions and all other
               work of Mr. Hastings in the course of his employment, or
               involvement in any capacity, with QLT, and all writings,
               drawings, diagrams, photographs, pictures, plans, manuals,
               software and other materials, goodwill and ideas relating
               thereto, including, but not limited to, all rights to acquire in
               the name of QLT or its nominee(s) patents, registration of
               copyrights, design patents and registrations, trade marks and
               other forms of protection that may be available.

          IV.  Execute all documents and do all acts reasonably requested by QLT
               to give effect to this provision.



<PAGE>
                                     - 11 -


7.4  RECORDS - Mr. Hastings agrees that all records or copies of records
     concerning QLT's activities, business interests or investigations and any
     other Confidential Information of QLT made or received by him during his
     employment with QLT are and will remain the property of QLT. Mr. Hastings
     further agrees to keep such records or copies in the custody of QLT and
     subject to its control, and to surrender the same at the termination of his
     employment or at any time during his employment at QLT's request.

7.5  NO USE OF FORMER EMPLOYER'S MATERIALS - Mr. Hastings certifies that he will
     not bring to QLT and will not use while performing his employment duties
     for QLT any materials or documents of any former employer which are not
     generally available to the public, except if the right to use the materials
     or documents has been acquired by QLT.

8.       POST-EMPLOYMENT RESTRICTIONS

8.1  NON-COMPETE - Mr. Hastings agrees that, without the prior written consent
     of QLT, for a period of two years following termination of his employment
     with QLT for any reason (by resignation or otherwise), as measured from his
     Last Active Day, Mr. Hastings will not:

     (a)  PARTICIPATE IN A COMPETITIVE BUSINESS - Directly or indirectly, own,
          manage, operate, join, control or participate in the ownership,
          management, operation or control of, or be a director or an employee
          of, or a consultant to, any business, firm or corporation that, as a
          part of conducting its business, is in any way competitive with QLT
          with respect to the development, commercialization and/or marketing of
          light-activated pharmaceutical products for photodynamic therapy in
          the treatment of cancer, ophthalmology and auto-immune disease
          anywhere in the United States, Canada, Mexico or the European Union.

     (b)  SOLICIT ON BEHALF OF A COMPETITIVE BUSINESS - Directly or indirectly
          call upon or solicit any QLT employee or QLT customer or known
          prospective customer of QLT as at the date of termination on behalf of
          any business, firm or corporation that, as part of conducting its
          business, is in any way competitive with QLT with respect to:

          I.   The development, commercialization and/or marketing of
               light-activated pharmaceutical products for photodynamic therapy
               in the treatment of cancer, ophthalmology and auto-immune
               disease, or

          II.  The development, commercialization and/or marketing of other
               pharmaceutical products that are based on a significantly similar
               technology platform and are used in the treatment of
               substantially the same medical indications as products which have
               become a significant component of QLT's core business,

         anywhere in the United States, Canada, Mexico or the European Union.

     (c)  SOLICIT EMPLOYEES - Directly or indirectly solicit any individual to
          leave QLT's employment for any reason or interfere in any other manner
          with the employment relationship existing between QLT and its current
          or known prospective employees as at the date of termination.

     (d)  SOLICIT CUSTOMERS - Directly or indirectly induce or attempt to induce
          any customer, supplier, distributor, licensee or other business
          relation of QLT to cease doing business with QLT or in any way
          interfere with the business relationship between any such customer,
          supplier, distributor, licensee or other business relation and QLT
          existing as at the date of termination.



<PAGE>
                                     - 12 -


8.2  MINORITY SHARE INTERESTS ALLOWED - The parties agree that nothing contained
     in paragraph 8.1 is intended to prohibit Mr. Hastings from owning any
     minority interest (less than 5%) in any company where stock or shares are
     traded publicly.

9.   REMEDIES

9.1  IRREPARABLE DAMAGE - Mr. Hastings acknowledges and agrees that:

     (a)  BREACH - Any breach of any provision of this Agreement could cause
          irreparable damage to QLT; and

     (b)  CONSEQUENCES OF BREACH - In the event of a breach of any provision of
          this Agreement by him, QLT will have, in addition to any and all other
          remedies at law or in equity, the right to an injunction, specific
          performance or other equitable relief to prevent any violation by him
          of any of the provisions of this Agreement including, without
          limitation, the provisions of Sections 7 and 8.

9.2  INJUNCTION - In the event of any dispute under Sections 7 and/or 8, Mr.
     Hastings agrees that QLT will be entitled, without showing actual damages,
     to a temporary or permanent injunction restraining his conduct, pending a
     determination of such dispute and that no bond or other security will be
     required from QLT in connection therewith.

9.3  ADDITIONAL REMEDIES - Mr. Hastings acknowledges and agrees that the
     remedies of QLT specified in this Agreement are in addition to, and not in
     substitution for, any other rights and remedies of QLT at law or in equity
     and that all such rights and remedies are cumulative and not alternative or
     exclusive of any other rights or remedies and that QLT may have recourse to
     any one or more of its available rights and remedies as it will see fit.

10.  GENERAL MATTERS

10.1 TAX WITHHELD - The parties acknowledge and agree that all payments to be
     made by QLT to Mr. Hastings under this Agreement will be subject to
     withholding by QLT of applicable withholding taxes.

10.2 INDEPENDENT LEGAL ADVICE - Mr. Hastings acknowledges that he has obtained
     or had the opportunity to obtain independent legal advice with respect to
     this Agreement and all of its terms and conditions. QLT will compensate Mr.
     Hastings for the cost of obtaining independent legal advice concerning this
     Agreement.

10.3 BINDING AGREEMENT - The parties agree that this Agreement will enure to the
     benefit of and be binding upon each of them and their respective heirs,
     executors, successors and assigns.

10.4 GOVERNING LAW - The parties agree that this Agreement will be governed by
     and interpreted in accordance with the laws of the Province of British
     Columbia and the laws of Canada applicable to this Agreement. All disputes
     arising under this Agreement will be referred to the Courts of the Province
     of British Columbia, which will have exclusive jurisdiction, unless there
     is mutual agreement to the contrary.

10.5 NOTICE - The parties agree that any notice or other communication required
     to be given under this Agreement will be in writing and will be delivered
     personally or by facsimile transmission to the addresses set forth on page
     1 of this Agreement to the attention of the following persons:



<PAGE>
                                     - 13 -


     (a)  IF TO QLT - Attention: Chairman of the Board of QLT c/o QLT, Fax No.
          (604) 875-0001,

          WITH A COPY TO:

          Farris, Vaughn, Wills & Murphy
          Barristers & Solicitors
          26th Floor, 700 West Georgia Street
          Vancouver, British Columbia
          V7Y 1B3
          Attention:  R. Hector MacKay-Dunn
          Fax No.:   (604) 661-1730

     (b)  IF TO MR. HASTINGS - Fax No. (415) 252-0488,

          WITH A COPY TO:

          Bull, Housser & Tupper
          Barristers & Solicitors
          30th Floor, 1055 West Georgia Street
          Vancouver, British Columbia
          V6E 3R3
          Attention:  Herbert J. Isherwood
          Fax No.:   (604) 641-4949

     or to such other addresses and persons as may from time to time be notified
     in writing by the parties. Any notice delivered personally will be deemed
     to have been given and received at the time of delivery. Any notice
     delivered by facsimile transmission will be deemed to have been given and
     received on the next business day following the date of transmission.

10.6     SURVIVAL OF TERMS

     (a)  EMPLOYEE'S OBLIGATIONS - Mr. Hastings acknowledges and agrees that his
          representations, warranties, covenants, agreements, obligations and
          liabilities under any and all of Sections 6, 7, 8 and 10 of this
          Agreement will survive any termination of this Agreement.

     (b)  COMPANY'S OBLIGATIONS - The Company acknowledges and agrees that its
          representations, warranties, covenants, agreements, obligations and
          liabilities under any and all of Sections 3, 4, 5 and 10 of this
          Agreement will survive any termination of this Agreement.

     (c)  WITHOUT PREJUDICE - Any termination of this Agreement will be without
          prejudice to any rights and obligations of the parties arising or
          existing up to the effective date of such expiration or termination,
          or any remedies of the parties with respect thereto.

10.7 WAIVER - The parties agree that any waiver of any breach or default under
     this Agreement will only be effective if in writing signed by the party
     against whom the waiver is sought to be enforced, and no waiver will be
     implied by indulgence, delay or other act, omission or conduct. Any waiver
     will only apply to the specific matter waived and only in the specific
     instance in which it is waived.

10.8 ENTIRE AGREEMENT - The parties agree that the provisions contained in this
     Agreement, Mr. Hastings' Change in Control Letter Agreement and any Stock
     Option Agreements between QLT and 


<PAGE>
                                     - 14 -


     Mr. Hastings constitute the entire agreement between QLT and Mr. Hastings
     with respect to the subject matters hereof, and supersede all previous
     communications, understandings and agreements (whether verbal or written)
     between QLT and Mr. Hastings regarding the subject matters hereof. To the
     extent that there is any conflict between the provisions of this Agreement,
     Mr. Hastings' Change in Control Letter Agreement and any Stock Option
     Agreements between QLT and Mr. Hastings, the following provisions will
     apply:

     (a)  CHANGE IN CONTROL - If the conflict is with respect to an event,
          entitlement or obligation in the case of a Change in Control of QLT
          (as defined in the Change in Control Letter Agreement), the provisions
          of the Change in Control Letter Agreement will govern (unless Mr.
          Hastings otherwise elects).

     (b)  STOCK OPTIONS - If the conflict is with respect to an entitlement or
          obligation with respect to stock options of QLT, the provisions of the
          Stock Option Agreements will govern (unless the parties otherwise
          mutually agree).

     (c)  OTHER - In the event of any other conflict, the provisions of this
          Agreement will govern (unless the parties otherwise mutually agree).

10.9  SEVERABILITY OF PROVISIONS - If any provision of this Agreement as applied
      to either party or to any circumstance is adjudged by a court of competent
      jurisdiction to be void or unenforceable for any reason, the invalidity of
      that provision will in no way affect (to the maximum extent permissible by
      law):

     (a)  The application of that provision under circumstances different from
          those adjudicated by the court;

     (b)  The application of any other provision of this Agreement; or

     (c)  The enforceability or invalidity of this Agreement as a whole.

     If any provision of this Agreement becomes or is deemed invalid, illegal or
     unenforceable in any jurisdiction by reason of the scope, extent or
     duration of its coverage, then the provision will be deemed amended to the
     extent necessary to conform to applicable law so as to be valid and
     enforceable or, if the provision cannot be so amended without materially
     altering the intention of the parties, then such provision will be stricken
     and the remainder of this Agreement will continue in full force and effect.

10.10 CAPTIONS - The parties agree that the captions appearing in this Agreement
     have been inserted for reference and as a matter of convenience and in no
     way define, limit or enlarge the scope or meaning of this Agreement or any
     provision.

10.10A TIME - Time is of the essence.



<PAGE>
                                     - 15 -




10.11 AMENDMENTS - Any amendment to this Agreement will only be effective if the
     amendment is in writing and is signed by QLT and Mr. Hastings.



     IN WITNESS WHEREOF the parties have executed this Agreement as of the day
and year first written above.


QLT INC.


BY:   ___________________________                 ______________________________
      E. DUFFSCOTT                                    PAUL J. HASTINGS
      CHAIRMAN OF THE BOARD




<PAGE>
                                     - 16 -



                                  SCHEDULE "A"

                           DUTIES AND RESPONSIBILITIES

To be attached.



<PAGE>
                                     - 17 -





                                  SCHEDULE "B"

                              RELOCATION ASSISTANCE

                      (THESE AMOUNTS ARE IN CANADIAN FUNDS)

CERTAIN PAYMENTS MADE TO MR. HASTINGS UNDER SCHEDULE "B" WILL BE TAXABLE
BENEFITS. THESE PAYMENTS WILL BE GROSSED UP TO MAKE WHOLE ANY TAXABLE BENEFITS
MR. HASTINGS RECEIVES UNDER SCHEDULE "B" AND MR. HASTINGS WILL BE PROVIDED WITH
A CHEQUE FOR THIS AMOUNT AT THE END OF THE TAXATION YEAR (MARCH) IN WHICH THE
EXPENSE WAS INCURRED.


1.   Return air fare to Vancouver (tickets provided by QLT) for Mr. Hastings to
     find suitable accommodation together with hotel and rental of an economy
     car for a period of 3-4 days.

2.   Six (6) months of interim accommodation upon arrival in Vancouver to a
     maximum of $3,000.00 per month. QLT will assist in locating this
     accommodation, if necessary. As required under the Income Tax Act, these
     payments must be used to provide for temporary accommodation while Mr.
     Hastings is waiting to occupy Mr. Hastings' new permanent residence,
     otherwise, they will be subject to the same required statutory withholdings
     in Canada as base salary.

3.   Reimbursement of real estate commission fees and reasonable legal expenses
     relating to the sale of Mr. Hastings' existing single principal residence
     within two years from Mr. Hastings' Commencement Date. These payments will
     be subject to the same required statutory withholdings in Canada as base
     salary.

4.   Reimbursement for reasonable legal expenses on Mr. Hastings' purchase of a
     single permanent principal residence in Greater Vancouver Regional District
     within two years from Mr. Hastings' Commencement Date and subject to a
     maximum reimbursement of $2,000.00.

5.   Reimbursement of the B.C. Property Purchase Tax paid on Mr. Hastings'
     residence.

6.   Moving costs for household possessions, including two (2) automobiles, and
     excluding bulky items of low value. QLT will assign a corporate moving
     company.

7.   Moving expenses incurred as a result of moving from Mr. Hastings' interim
     accommodations to Mr. Hastings' permanent residence in the Greater
     Vancouver area, to a maximum of $2,000.00. QLT will assign a corporate
     moving company.

8.   Reimbursement for the rental of an economy car for a one-month period if
     necessary.

9.   One-way air fares for Mr. Hastings and Mr. Hastings' immediate family from
     Mr. Hastings' present location to Vancouver at the time of the move (or
     return air fare for Mr. Hastings if Mr. Hastings relocates to Vancouver
     prior to Mr. Hastings' family).

10.  Accountable allowance: Reimbursement of up to $10,000.00 to cover other
     reasonable expenses associated with Mr. Hastings' move. The attached list
     "Other Allowable Expenses" outlines those moving-related expenses which
     Revenue Canada allows us to reimburse Mr. Hastings for without incurring a
     taxable benefit. Supporting receipts will be required.



<PAGE>
                                     - 18 -


11.  Non-accountable allowance: As part of Mr. Hastings' relocation, Mr.
     Hastings will likely incur a number of incidental expenses which may not
     appear on the attached list (eg. cleaning costs). QLT will reimburse Mr.
     Hastings for these costs up to $650.00 on a tax-free basis in line with
     Revenue Canada's accepted policy for non-accountable allowances (this is in
     addition to the accountable allowance noted above). Note that we do not
     require Mr. Hastings to supply supporting receipts for this reimbursement,
     however, Mr. Hastings will be required to provide us with a memo certifying
     that Mr. Hastings incurred at least this much in incidental costs. Any
     additional reimbursement Mr. Hastings receives for "incidentals" that are
     not on the attached list will be considered a taxable benefit.

POTENTIAL REPAYMENT OF RELOCATION ASSISTANCE. In the event of a termination of
employment by Mr. Hastings pursuant to Section 3.1 within twenty-four (24)
months from the Commencement Date, Mr. Hastings shall be required to reimburse
QLT for a portion of the financial assistance provided by QLT under this
Schedule "B". The amount of the repayment shall be computed by prorating the
amount of the financial assistance by the time remaining in the twenty-four (24)
month period. Such amount shall be payable to QLT within one hundred and twenty
(120) days from the effective date of termination of Mr. Hastings' employment.

RELOCATION ASSISTANCE UPON TERMINATION BY QLT. In the event of a termination by
QLT, other than for cause, within twenty-four (24) months from the Commencement
Date, QLT shall provide financial assistance for Mr. Hastings to relocate to
another location in North America for purposes of new employment. The amount of
such financial assistance shall be computed in accordance with this Schedule
"B", but in no event shall the amount payable exceed the amount paid under this
Schedule "B" to relocate Mr. Hastings to Vancouver. In addition, the assistance
will only be provided by QLT in the event that the relocation by Mr. Hastings
occurs within six (6) months from the effective date of termination of Mr.
Hastings' employment.




<PAGE>
                                     - 19 -




                                  SCHEDULE "C"

                              HOME RELOCATION LOAN



HOME RELOCATION LOAN - QLT will make available to Mr. Hastings a home relocation
loan of US$400,000.00 upon his purchase of a principal residence in the Greater
Vancouver Regional District within two years from the Commencement Date. The
loan will be non-interest bearing and forgivable over a 4-year period with 25%
forgivable for each full 12 month period of continuous employment with QLT that
is completed by Mr. Hastings calculated from the date of the initial advance of
the loan from QLT to Mr. Hastings. There are certain taxable benefit
implications associated with non-interest bearing, forgivable home relocation
loans. As a condition of QLT advancing the loan to Mr. Hastings, Mr. Hastings
(and any other persons with a fee simple ownership interest in the home) will
grant to QLT a mortgage in the form reasonably requested by QLT, which mortgage
will be registered 1st in priority to all other financial encumbrances against
title to the home. In the event that Mr. Hastings' employment with QLT is
terminated for any reason prior to the end of the 4-year period then:

(a)      in the case of a resignation by Mr. Hastings or his termination for
         cause prior to full forgiveness of the loan, the outstanding balance of
         the loan will revert to an interest-bearing loan due the earlier of the
         end of the 4-year period or the date of the sale of the house. The loan
         will convert to interest bearing at the commercial rate for residential
         fixed term mortgage loans of the same duration as set from time to time
         by the Royal Bank of Canada; or

(b)      in the case Mr. Hastings' employment with QLT is terminated by QLT
         other than for cause or by reason of his death, the entire amount then
         outstanding under the relocation loan will be forgiven by QLT effective
         on the date of Mr. Hastings' termination.










<PAGE>
                                                                   EXHIBIT 10.78

                              EMPLOYMENT AGREEMENT

[QLT INC. Logo]

    This Employment Agreement dated for reference October 9th, 2001.


BETWEEN:

          QLT INC., having an address of 887 Great Northern Way, Vancouver,
          British Columbia, V5T 4T5, Canada,

          ("QLT" or the "COMPANY")

AND:

          MICHAEL J. DOTY, having an address of 3 Molino Drive, Chatham, New
          Jersey, 07928, U.S.A.

          ("Employee's Name" or the "EMPLOYEE")

WHEREAS:

A.   QLT is a world leader in the development and commercialization of
     proprietary pharmaceutical products for use in photodynamic therapy, an
     emerging field of medicine utilizing light-activated drugs in the treatment
     of disease;

B.   QLT has offered to the Employee, and the Employee has accepted, employment
     with QLT as Senior Vice President and Chief Financial Officer.

C.   QLT and the Employee wish to enter into this Agreement to set out the terms
     and conditions of the Employee's employment with QLT.

D.   Employment is subject to the Employee obtaining and maintaining permission
     of Canada Immigration to work in Canada in this position. QLT will
     reimburse the Employee for the costs associated with obtaining employment
     and permanent resident status.

     NOW THEREFORE in consideration of $10.00, the promises made by each party
to the other as set out in
 this Agreement and other good and valuable
consideration, the receipt and sufficiency of which the parties acknowledge and
agree, QLT and the Employee agree as follows:

1.       POSITION AND DUTIES

1.1  POSITION - QLT will employ the Employee in the position Senior Vice
     President and Chief Financial Officer and the Employee agrees to be
     employed by QLT in this position, subject to the terms and conditions of
     this Agreement.

1.2  DUTIES, REPORTING AND EFFORTS - In the performance of his/her duties as
     Senior Vice President and Chief Financial Officer, Executive Offices and,
     the Employee shall, in accordance with his/her Accountability Statement, as
     may be amended from time to time:


                                     Page 1


<PAGE>

                                                                   EXHIBIT 10.78


1.2  (a) OVERALL RESPONSIBILITIES:

     i)   For building financial resources and financial infrastructure, and
     ii)  For building positive relationships with the financial analyst
          community, and
     iii) For leading several departments including Finance, Information
          Technology, Building Operations, Legal Affairs, and Investor
          Relations.

(a)  EXECUTIVE OFFICES - Personally undertake and/or delegate all senior
     administrative responsibilities pertaining to all above areas of
     responsibility at QLT, in accordance with policies established from time to
     time by the President of the Company (the "PRESIDENT") and by the Board of
     Directors of the Company (the "BOARD").

(b)  REPORT - Report, as and when required, to the President.

(c)  BEST EFFORTS - Use his/her best efforts, industry and knowledge to improve
     and increase QLT's business and to ensure that QLT is at all times in
     compliance with applicable provincial, state, federal and other governing
     statutes, policies and regulations pertaining to QLT business, and in
     particular, project planning and management at QLT.

(d)  WORKING DAY - Devote the whole of his/her working day attention and
     energies to the business and affairs of QLT.

2.       COMPENSATION

         All sums are in Canadian Dollars unless otherwise stated.

2.1  ANNUAL COMPENSATION - In return for his/her services under this Agreement,
     the Company agrees to pay or otherwise provide the following total annual
     compensation to the Employee:

     (a)  BASE SALARY - A base salary in the amount of $240,000.00 (U.S.) in 24
          equal installments payable semi-monthly in arrears, subject to
          periodic reviews at the discretion of the President and the Board.

     (b)  BENEFIT PLANS - Coverage for the Employee and his/her eligible
          dependents under any employee benefit plans provided by/through QLT to
          its employees, subject to:

          I.   Each plan's terms for eligibility,
          II.  The Employee taking the necessary steps to ensure effective
               enrollment or registration under each plan, and
          III. Customary deductions of employee contributions for the premiums
               of each plan.

         As at the date of this Agreement, the employee benefit plans provided
         by/through QLT to its employees include life insurance, accidental
         death and dismemberment insurance, dependent life insurance,
         vision-care insurance, health insurance, dental insurance and short and
         long term disability insurance. QLT and the Employee agree that the
         employee benefit plans provided by/through QLT to its employees may
         change from time to time.

     (c)  EXPENSE REIMBURSEMENT - Reimbursement, in accordance with the
          Company's Policy and Procedures Manual (as amended from time to time),
          of all reasonable business related promotion, entertainment and/or
          travel expenses incurred by the Employee, subject to him/her
          maintaining proper accounts and providing documentation for these
          expenses upon request.

                                     Page 2


<PAGE>

                                                                   EXHIBIT 10.78

     (d)  VACATION - Four weeks of paid vacation per year, as may be increased
          from time to time in accordance with QLT's standard vacation policy.
          As per the Company's Policy and Procedures Manual (as amended from
          time to time), unless agreed to in writing by the Company:

          I.   All vacation must be taken within one year of the year in which
               it is earned by the Employee, and
          II.  Vacation entitlement shall not be cumulative from year to year.

     (e)  RRSP CONTRIBUTIONS - Provided the conditions set out below have been
          satisfied, in January or February of the year following the year in
          which the income is earned by the Employee (the "INCOME YEAR"), QLT
          shall make a contribution of up to 7% of the Employee's annual base
          salary for the Income Year to the Employee's Registered Retired
          Savings Plan ("RRSP"). The contribution to the Employee's RRSP as set
          out above is subject the following conditions:

          I.   The maximum contribution to be made by the Company to the
               Employee's RRSP is 50% of the annual limit for Registered
               Retirement Savings Plans as established by Revenue Canada for the
               Income Year,

          II.  The Employee must have contributed an equal amount into his/her
               RRSP, and

          III. The Employee is still actively employed by the Company when the
               matching contribution would otherwise be made.

     (f)  CASH INCENTIVE COMPENSATION PLAN - Participation in the Cash Incentive
          Compensation Plan offered by QLT to its senior executives in
          accordance with the terms of such Plan, as amended from time to time
          by the Board. The amount of the payment granted, if any, is at the
          discretion of the Executive Compensation Committee of the Board.

     (g)  STOCK OPTION PLAN - Participation in any stock option plan offered by
          QLT to its employees, in accordance with the terms of the plan in
          effect at the time of the stock option offer(s).

2.2  ADDITIONAL COMPENSATION - The Company and the Employee agree to the terms
     of relocation assistance, relocation repayment, and relocation assistance
     upon termination by the Company as set out in SCHEDULE A to this Agreement.
     In return for the Employee's services under this Agreement, the Company
     also agrees to pay or otherwise provide additional special compensation to
     the Employee as more particularly set out in SCHEDULE 2.2 to this
     agreement.

3.       RESIGNATION

3.1  RESIGNATION - The Employee may resign from his/her employment with QLT by
     giving QLT 60 days prior written notice (the "RESIGNATION NOTICE") of the
     effective date of his/her resignation. On receiving a Resignation Notice,
     QLT may elect to provide the following payments in lieu of notice to the
     Employee and require him/her to leave the premises forthwith:

     (a)  BASE SALARY - Base salary owing to the Employee for the 60-day notice
          period.

     (b)  BENEFITS - Except as set out below in this subparagraph 3.1(b), for
          the 60-day notice period, all employee benefit plan coverage enjoyed
          by the Employee and his/her eligible dependents prior to the date of
          his/her Resignation Notice. The Employee acknowledges and agrees that
          pension and short and long term disability plans provided through the
          Company will not be continued beyond the last day that the Employee
          works at the Company's premises (the "LAST ACTIVE DAY").

                                     Page 3



<PAGE>

                                                                   EXHIBIT 10.78


     (c)  EXPENSE REIMBURSEMENT - Reimbursement (in accordance with the
          Company's Policy and Procedures Manual, as amended from time to time)
          of all reasonable business related promotion, entertainment and/or
          travel expenses incurred by the Employee prior to his/her Last Active
          Day, subject to the expense reimbursement provisions set out in
          subparagraph 2.1(c).

     (d)  VACATION PAY - Payment in respect of accrued but unpaid vacation pay
          owing to the Employee as at the expiry of the 60-day notice period.

     (e)  PRORATED RRSP CONTRIBUTION - A prorated contribution to the Employee's
          RRSP, the pro-ration to be with respect to the portion of the current
          calendar year worked by the Employee, up to and including the 60-day
          notice period, and the contribution to be subject to the conditions
          set out in subparagraph 2.1(e), except condition III.

3.2  OTHERS - In the event of resignation of the Employee as set out in
     paragraph 3.1, the parties agree:

     (a)  NO BONUS - The Employee will have no entitlement to participate in the
          Company's Cash Incentive Compensation Plan for the year in which he
          resigns his/her employment with QLT; and

     (b)  STOCK OPTION PLAN - The Employee's participation in any stock option
          plan offered by QLT to its employees shall be in accordance with the
          terms of the plan in effect at the time of the stock option offer(s)
          to the Employee.

4.       RETIREMENT

4.1  RETIREMENT - Effective the date of retirement (as defined in the Company'
     Policy and Procedures Manual, as amended from time to time) of The Employee
     from active employment with the Company, the parties agree that:

     (a)  THIS AGREEMENT - Subject to the provisions of paragraph 10.6, both
          parties' rights and obligations under this Agreement will terminate
          without further notice or action by either party.

     (b)  STOCK OPTIONS - The Employee's participation in any stock option plan
          offered by QLT to its employees shall be in accordance with the terms
          of the plan in effect at the time of the stock option offer(s) to the
          Employee.

5.       TERMINATION

5.1  TERMINATION FOR CAUSE - QLT reserves the right to terminate the Employee's
     employment at any time for any reason. Should the Employee be terminated
     for cause, he/she will not be entitled to any advance notice of termination
     or pay in lieu thereof.

     DEFINTION OF CAUSE- Termination by QLT of your employment for "Cause" shall
     mean termination (a) upon the willful and continued failure by you to
     substantially perform your duties with QLT in accordance with the terms of
     this Employment Agreement (other than any such failure resulting from your
     incapacity due to physical or mental illness), (for purposes of this
     section, no act, or failure to act, on your part shall be deemed "willful"
     unless done, or omitted to be done, by you without good faith and without
     reasonable belief that your action was in the best interest of QLT) (b)
     fraud, and c) violation of QLT's harassment policy as outlined in the QLT
     Employee Policy and Procedures Manual., notwithstanding the foregoing, you
     shall not be terminated for Cause unless and until a copy of a resolution
     duly adopted by the unanimous affirmation vote of the entire membership of
     the Compensation Committee of the Board of Directors at a meeting of the
     Compensation Committee of the Board has taken place.

                                     Page 4



<PAGE>

                                                                   EXHIBIT 10.78


5.2  TERMINATION OTHER THAN FOR CAUSE - QLT reserves the right to terminate the
     Employee's employment at any time without reason. However, if QLT
     terminates the Employee's employment for:

     (a)  Any reason other than for cause, or

     (b)  Any reason not covered by a separate Change in Control Letter
          Agreement dated of even date between QLT and the Employee,

     then, except in the case of the Employee becoming completely disabled
     (which is provided for in paragraph 5.8) and subject to the provisions set
     forth below, the Employee shall be entitled to receive notice, pay and/or
     benefits (or any combination of notice, pay and/or benefits) as more
     particularly set out in paragraph 5.3.

5.3  SEVERANCE NOTICE AND PAY - In the event QLT terminates the Employee's
     employment as set out in paragraph 5.2, the Employee shall be entitled to:

     (a)  NOTICE - Advance written notice of termination ("SEVERANCE NOTICE"),
          or pay in lieu thereof ("SEVERANCE PAY"), or any combination of
          Severance Notice and Severance Pay, as more particularly set out
          below:

          I.   A minimum of twelve months' Severance Notice, or Severance Pay in
               lieu thereof, in the first year of employment and

          II.  One additional month's Severance Notice, or Severance Pay in lieu
               thereof, for each complete year of continuous employment with the
               Company,

         up to a maximum of twenty four months' Severance Notice, or Severance
         Pay in lieu of Severance Notice. The Employee acknowledges and agrees
         that Severance Pay is in respect of base salary only and will be made
         on a bi-weekly or monthly basis, at the Company's discretion.

     (b)  BENEFITS - Except as set out below, for 30 days after the Employee's
          Last Active Day, all employee benefit plan coverage enjoyed by the
          Employee and his/her dependents prior to the date of termination.
          Thereafter, and in lieu of employee benefit plan coverage, The
          Employee shall receive compensation ("BENEFITS COMPENSATION") in the
          amount of 10% of his/her base salary for the balance of his/her
          Severance Notice period. The Employee acknowledges and agrees that
          pension and short and long term disability plans provided through the
          Company will not be continued beyond the Employee's Last Active Day.

     (c)  OUT PLACEMENT COUNSELING - In the event QLT terminates the Employee's
          employment as set out in paragraph 5.2, in the year following
          termination, QLT will pay to an out placement counseling service (to
          be agreed to by the Employee and QLT) a maximum of Cdn$5,000 for
          assistance rendered to the Employee in seeking alternative employment.

     (d)  OTHER COMPENSATION - In the event QLT terminates the Employee's
          employment as set out in paragraph 5.2, the parties further agree as
          follows:

          I.   The Company will reimburse (in accordance with the Company's
               Policy and Procedures Manual, as amended from time to time) the
               Employee for all reasonable business related promotion,
               entertainment and/or travel expenses incurred by the Employee
               prior to the date of 

                                     Page 5


<PAGE>

                                                                   EXHIBIT 10.78


               termination, subject to the expense reimbursement provisions set
               out in subparagraph 2.1(c).

          II.  The Company will make a payment to the Employee in respect of
               his/her accrued but unpaid vacation pay to the date of
               termination.

          III. The Company will make a prorated contribution to the Employee's
               RRSP, the pro-ration to be with respect to the portion of the
               current calendar year worked by the Employee and the contribution
               to be subject to the conditions set out in subparagraph 2.1(e),
               except condition III.

          IV.  The Company will make a prorated payment to the Employee in
               respect of his/her entitlement to participate in the Company's
               Cash Incentive Compensation Plan, the pro-ration to be with
               respect to the portion of the current calendar year worked by the
               Employee and the entitlement to be at the maximum level the
               Employee would have otherwise been eligible to receive in the
               current calendar year.

          V.   The Employee's participation in any stock option plan offered by
               QLT to its employees shall be in accordance with the terms of the
               plan in effect at the time of the stock option offer(s) to the
               Employee.

5.4  ACKNOWLEDGEMENT - The Employee acknowledges and agrees that in the event
     QLT terminates the Employee's employment as set out in paragraph 5.2, in
     providing:

     (a)  The Severance Notice or Severance Pay, or any combination thereof;
     (b)  The Benefits Compensation;
     (c)  Out placement counseling service as more particularly set out in
          subparagraph 5.3(c); and
     (d)  The other compensation set out in subparagraph 5.3(d);

     the Company shall have no further obligations, statutory or otherwise, to
     the Employee in respect of this Agreement and the Employee's employment
     under this Agreement.

5.5      DUTY TO MITIGATE

     (a)  DUTY TO MITIGATE - The Employee acknowledges and agrees that if
          his/her employment is terminated as set out in paragraph 5.2, his/her
          entitlement to Severance Pay, Benefits Compensation and other
          compensation as set out in paragraph 5.3 is subject to his/her duty to
          mitigate such payments by looking for and accepting suitable
          alternative employment or contract(s) for services.

     (b)  NOTICE - If the Employee obtains new employment or contract(s) for
          services of four weeks or longer, the Employee agrees that he/she will
          notify QLT of this fact in writing (the "NEW EMPLOYMENT NOTICE")
          within five working days of such an occurrence and in this event the
          following provisions apply:

          I.   The Employee acknowledges and agrees that his/her entitlement to
               Severance Pay and Benefits Compensation will cease as of the date
               on which his/her new employment or contract for services
               commences.

          II.  Within 10 working days of receipt of the New Employment Notice
               from the Employee, QLT agrees that it will pay the Employee a
               lump sum amount equivalent to 50% of the Severance Pay and
               Benefits Compensation as set out in paragraph 5.3 otherwise owing
               to the Employee for the balance of the Severance Notice period.

5.6  FUNDAMENTAL BREACH - The Employee acknowledges and agrees that failure by
     him/her to provide the 

                                     Page 6

<PAGE>

                                                                   EXHIBIT 10.78


     New Employment Notice to QLT within five working days as set out in
     paragraph 5.5, or him/her providing employment or contract(s) for services
     to a company which is in direct competition with QLT in breach of paragraph
     8.1, will be deemed to be a fundamental breach of this Agreement and QLT's
     obligations to pay Severance Pay, Benefits Compensation and other
     compensation as set out in paragraph 5.3 shall cease immediately.

5.7  NO DUPLICATION - In the event that the Severance Pay provisions of this
     Agreement and the payment provisions of the Change in Control Agreement are
     both applicable, the Employee agrees that he/she will give written notice
     to the Company with respect to which agreement he/she wishes to be paid out
     under and that he/she is not entitled to severance pay under both
     agreements.

5.8       TERMINATION DUE TO INABILITY TO ACT

     (a)  TERMINATION - QLT may immediately terminate this Agreement by giving
          written notice to the Employee if he/she becomes completely disabled
          (defined below) to the extent that he/she cannot perform his/her
          duties under this Agreement either:

          I.   For a period exceeding six consecutive months, or

          II.  For a period of 180 days (not necessarily consecutive) occurring
               during any period of 365 consecutive days,

          and no other reasonable accommodation can be reached between QLT and
          the Employee. Notwithstanding the foregoing, QLT agrees that it will
          not terminate the Employee pursuant to this provision unless and until
          the Employee has been accepted by the insurer for ongoing long-term
          disability payments or, alternatively, has been ruled definitively
          ineligible for such payments.

     (b)  PAYMENTS - In the event of termination of the Employee's employment
          with the Company pursuant to the provisions of this paragraph 5.8, the
          Company agrees to pay to the Employee Severance Pay and Benefits
          Compensation as set out in paragraph 5.3 and in this situation:

          I.   While he/she is completely disabled the Employee shall have no
               duty to mitigate the payments owing to him/her by looking for and
               accepting suitable alternative employment or contract(s) for
               service, and

          II.  If the Employee ceases to be completely disabled, then the
               provisions of paragraphs 5.5 (duty to mitigate and notice of new
               employment) and 5.3(c) (out placement counseling) shall apply.

     (c)  DEFINITION - The term "completely disabled" as used in this paragraph
          5.8 shall mean the inability of the Employee to perform the essential
          functions of his/her position under this Agreement by reason of any
          incapacity, physical or mental, which the Board, based upon medical
          advice or an opinion provided by a licensed physician acceptable to
          the Board, determines to keep the Employee from satisfactorily
          performing any and all essential functions of his/her position for the
          Company during the foreseeable future.

5.9  DEATH - Except as set out below, effective the date of death (the "DATE OF
     DEATH") of the Employee, this Agreement and both parties' rights and
     obligations under this Agreement shall terminate without further notice or
     action by either party. Within 30 days after the Date of Death (and the
     automatic concurrent termination of this Agreement), the Company shall pay
     the following amounts to the Employee's estate:

     (a)  BASE SALARY - Base salary owing to The Employee up to his/her Date of
          Death.

                                     Page 7


<PAGE>

                                                                   EXHIBIT 10.78


     (b)  PAYMENT IN LIEU OF BENEFITS - In lieu of employee benefit coverage for
          his/her eligible dependents after his/her Date of Death, a payment in
          the amount of 10% of his/her annual base salary in effect at his/her
          Date of Death.

     (c)  EXPENSE REIMBURSEMENT - Reimbursement (in accordance with the
          Company's Policy and Procedures Manual, as amended from time to time)
          of all reasonable business related promotion, entertainment and/or
          travel expenses incurred by the Employee prior to his/her Date of
          Death, subject to the expense reimbursement provisions set out in
          subparagraph 2.1(c).

     (d)  VACATION PAY - Payment in respect of accrued but unpaid vacation pay
          owing to the Employee as at his/her Date of Death.

     (e)  RRSP CONTRIBUTION - A prorated contribution to the Employee's RRSP,
          the pro-ration to be with respect to the portion of the current
          calendar year worked by the Employee and the contribution to be
          subject to the conditions set out in subparagraph 2.1(e), except
          condition III.

     (f)  BONUS - A prorated payment to the Employee in respect of his/her
          entitlement to participate in the Company's Cash Incentive
          Compensation Plan, the pro-ration to be with respect to the portion of
          the current calendar year worked by the Employee and the entitlement
          to be at the maximum level the Employee would have otherwise been
          eligible to receive in the current calendar year.

     After his/her Date of Death, the Employee's participation and/or
     entitlement under any stock option plan offered by QLT to its employees
     shall be in accordance with the terms of the plan in effect at the time of
     the stock option offer(s) to the Employee.

6.       CONFLICT OF INTEREST

6.1  AVOID CONFLICT OF INTEREST - Except as set out below, during the term of
     his/her employment with QLT, the Employee agrees to conduct himself/herself
     at all times so as to avoid any real or apparent conflict of interest with
     the activities, policies, operations and interests of QLT. To avoid
     improper appearances, the Employee agrees that he/she will not accept any
     financial compensation of any kind, nor any special discount, loan or
     favour from persons, corporations or organizations having dealings or
     potential dealings with QLT, either as a customer or a supplier or a
     co-venturer. The Company and the Employee acknowledge and agree that from
     time to time the President may consent in writing to activities by the
     Employee which might otherwise appear to be a real or apparent conflict of
     interest.

6.2  NO FINANCIAL ADVANTAGE - During the term of his/her employment with QLT,
     the Employee agrees that neither he/she nor any members of his/her
     immediate family will take financial advantage of or benefit financially
     from information that is obtained in the course of his/her employment
     related duties and responsibilities unless the information is generally
     available to the public.

6.3  COMPLY WITH POLICIES - During the term of his/her employment with QLT, the
     Employee agrees to comply with all written policies issued by QLT dealing
     with conflicts of interest.

6.4  BREACH EQUALS CAUSE - The Employee acknowledges and agrees that breach by
     him/her of the provisions of this Section 6 shall be cause for immediate
     termination by the Company of his/her employment with the Company.

7.       CONFIDENTIALITY

7.1  INFORMATION HELD IN TRUST - The Employee acknowledges and agrees that all
     business and trade secrets, confidential information and knowledge which
     the Employee acquires during his/her 

                                     Page 8



<PAGE>

                                                                   EXHIBIT 10.78


     employment with QLT relating to the business and affairs of QLT or to
     technology, systems, programs, ideas, products or services which have been
     or are being developed or utilized by QLT, or in which QLT is or may become
     interested (collectively, "CONFIDENTIAL INFORMATION"), shall for all
     purposes and at all times, both during the term of the Employee's
     employment with the Company and at all times thereafter, be held by the
     Employee in trust for the exclusive benefit of the Company.

7.2  NON DISCLOSURE - The Employee acknowledges and agrees that both during the
     term of his/her employment with QLT and at all times thereafter, without
     the express or implied consent of QLT, the Employee will not:

     (a)  DISCLOSE - Disclose to any company, firm or person, other than QLT and
          its directors and officers, any of the private affairs of QLT or any
          Confidential Information of QLT; or

     (b)  USE - Use any Confidential Information that he may acquire with
          respect to QLT's affairs for his/her own purposes or for any purposes,
          other than those of the Company.

7.3      INTELLECTUAL PROPERTY RIGHTS

     (a)  DISCLOSE INVENTIONS - The Employee agrees to promptly disclose to QLT
          any and all ideas, developments, designs, articles, inventions,
          improvements, discoveries, machines, appliances, processes, methods,
          products or the like (collectively, "INVENTIONS") that the Employee
          may invent, conceive, create, design, develop, prepare, author,
          produce or reduce to practice, either solely or jointly with others,
          in the course of his/her employment with the Company.

     (b)  INVENTIONS ARE QLT PROPERTY - All Inventions and all other work of the
          Employee in the course of his/her employment with the Company shall at
          all times and for all purposes be the property of QLT for QLT to use,
          alter, vary, adapt and exploit as it shall see fit, and shall be
          acquired or held by the Employee in a fiduciary capacity solely for
          the benefit of QLT.

     (c)  ADDITIONAL REQUIREMENTS - The Employee agrees to:

          I.   Treat all information with respect to Inventions as Confidential
               Information.
          II.  Keep complete and accurate records of Inventions, which records
               shall be the property of QLT and copies of which records shall be
               maintained at the premises of QLT.
          III. Execute all assignments and other documents required to assign
               and transfer to QLT (or such other persons as QLT may direct) all
               right, title and interest in and to the Inventions and all other
               work of the Employee in the course of his/her employment with the
               Company, and all writings, drawings, diagrams, photographs,
               pictures, plans, manuals, software and other materials, goodwill
               and ideas relating thereto, including, but not limited to, all
               rights to acquire in the name of QLT or its nominee(s) patents,
               registration of copyrights, design patents and registrations,
               trade marks and other forms of protection that may be available.
          IV.  Execute all documents and do all acts reasonably requested by QLT
               to give effect to this provision.

7.4  RECORDS - The Employee agrees that all records or copies of records
     concerning QLT's activities, business interests or investigations made or
     received by him/her during his/her employment with QLT are and shall remain
     the property of QLT. He/she further agrees to keep such records or copies
     in the custody of QLT and subject to its control, and to surrender the same
     at the termination of his/her employment or at any time during his/her
     employment at QLT's request.

7.5  NO USE OF FORMER EMPLOYER'S MATERIALS - The Employee certifies that he/she
     has not brought to QLT and will not use while performing his/her employment
     duties for QLT any materials or documents of any 

                                     Page 9

<PAGE>

                                                                   EXHIBIT 10.78


     former employer which are not generally available to the public, except if
     the right to use the materials or documents has been duly licensed to QLT
     by the former employer.

8.       POST-EMPLOYMENT RESTRICTIONS

8.1  NON-COMPETE - The Employee agrees that, without the prior written consent
     of QLT, for a period of two years following termination of his/her
     employment with the Company for any reason (by resignation or otherwise),
     as measured from his/her Last Active Day, the Employee shall not:

     (a)  PARTICIPATE IN A COMPETITIVE BUSINESS - Directly or indirectly, own,
          manage, operate, join, control or participate in the ownership,
          management, operation or control of, or be a director or an employee
          of, or a consultant to, any business, firm or corporation that, as a
          part of conducting its business, is in any way competitive with QLT
          with respect to:

          I.   The development and/or commercialization and/or marketing of
               light-activated pharmaceutical products for photodynamic therapy
               in the treatment of cancer, opthalmic, auto-immune and
               cardiovascular disease, or
          II.  If the core technology base of the Company diversifies beyond
               photodynamic therapy, the development and/or commercialization
               and/or marketing of pharmaceutical products that are based on a
               significantly similar technology platform and are used in the
               treatment of substantially the same medical indications as
               products which have become a significant component of the
               Company's core business,

          anywhere in Canada, the United States or Europe.

     (b)  SOLICIT ON BEHALF OF A COMPETITIVE BUSINESS - Directly or indirectly
          call upon or solicit any QLT employee or QLT customer or known
          prospective customer of QLT on behalf of any business, firm or
          corporation that, as part of conducting its business, is in any way
          competitive with QLT with respect to:

          I.   The development and/or commercialization and/or marketing of
               light-activated pharmaceutical products for photodynamic therapy
               in the treatment of cancer, opthalmic, auto-immune and
               cardiovascular disease, or
          II.  If the core technology base of the Company diversifies beyond
               photodynamic therapy, the development and/or commercialization
               and/or marketing of pharmaceutical products that are based on a
               significantly similar technology platform and are used in the
               treatment of substantially the same medical indications as
               products which have become a significant component of the
               Company's core business,

          anywhere in Canada, the United States or Europe.

     (c)  SOLICIT EMPLOYEES - Directly or indirectly solicit any individual to
          leave QLT's employment for any reason or interfere in any other manner
          with the employment relationship existing between QLT and its current
          or prospective employees.

     (d)  SOLICIT CUSTOMERS - Directly or indirectly induce or attempt to induce
          any customer, supplier, distributor, licensee or other business
          relation of QLT to cease doing business with QLT or in any way
          interfere with the existing business relationship between any such
          customer, supplier, distributor, licensee or other business relation
          and QLT.

8.2  MINORITY SHARE INTERESTS ALLOWED - The parties agree that nothing contained
     in paragraph 8.1 is intended to prohibit the Employee from owning any
     minority interest in any company where stock or 

                                    Page 10

<PAGE>

                                                                   EXHIBIT 10.78


     shares are traded publicly.

9.       REMEDIES

9.1  IRREPARABLE DAMAGE - The Employee acknowledges and agrees that:

     (a)  BREACH - Any breach of any provision of this Agreement could cause
          irreparable damage to QLT; and

     (b)  CONSEQUENCES OF BREACH - In the event of a breach of any provision of
          this Agreement by him/her, QLT shall have, in addition to any and all
          other remedies at law or in equity, the right to an injunction,
          specific performance or other equitable relief to prevent any
          violation by him/her of any of the provisions of this Agreement
          including, without limitation, the provisions of Sections 7 and 8.

9.2  INJUNCTION - In the event of any dispute under Sections 7 and/or 8, the
     Employee agrees that QLT shall be entitled, without showing actual damages,
     to a temporary or permanent injunction restraining his/her conduct, pending
     a determination of such dispute and that no bond or other security shall be
     required from QLT in connection therewith.

9.3  ADDITIONAL REMEDIES - The Employee acknowledges and agrees that the
     remedies of QLT specified in this Agreement are in addition to, and not in
     substitution for, any other rights and remedies of QLT at law or in equity
     and that all such rights and remedies are cumulative and not alternative or
     exclusive of any other rights or remedies and that QLT may have recourse to
     any one or more of its available rights and remedies as it shall see fit.

10.      GENERAL MATTERS

10.1 TAX WITHHELD - The parties acknowledge and agree that all payments to be
     made by the Company to the Employee under this Agreement will be subject to
     the Company's withholding of applicable withholding taxes.

10.2 INDEPENDENT LEGAL ADVICE - The Employee acknowledges that he/she has
     obtained or had the opportunity to obtain independent legal advice with
     respect to this Agreement and all of its terms and conditions.

10.3 BINDING AGREEMENT - The parties agree that this Agreement shall enure to
     the benefit of and be binding upon each of them and their respective heirs,
     executors, successors and assigns.

10.4 GOVERNING LAW - The parties agree that this Agreement shall be governed by
     and interpreted in accordance with the laws of the Province of British
     Columbia and the laws of Canada applicable to this Agreement. All disputes
     arising under this Agreement will be referred to the Courts of the Province
     of British Columbia, which will have exclusive jurisdiction, unless there
     is mutual agreement to the contrary.

10.5 NOTICE - The parties agree that any notice or other communication required
     to be given under this Agreement shall be in writing and shall be delivered
     personally or by facsimile transmission to the addresses set forth on page
     1 of this Agreement to the attention of the following persons:

     (a)  IF TO THE COMPANY - Attention: President, Fax No. (604) 875-0001,

         WITH A COPY TO:

                                    Page 11

<PAGE>

                                                                   EXHIBIT 10.78


         Farris, Vaughn, Wills & Murphy
         Barristers & Solicitors
         26th Floor, 700 West Georgia Street
         Vancouver, British Columbia
         V7Y 1B3
         Attention:  R. Hector MacKay-Dunn
         Fax No.:   (604) 661-1730

     (b)  IF TO THE EMPLOYEE - Fax No. ___________;

     or to such other addresses and persons as may from time to time be notified
     in writing by the parties. Any notice delivered personally shall be deemed
     to have been given and received at the time of delivery. Any notice
     delivered by facsimile transmission shall be deemed to have been given and
     received on the next business day following the date of transmission.

10.6 SURVIVAL OF TERMS

     (a)  EMPLOYEE'S OBLIGATIONS - The Employee acknowledges and agrees that
          his/her representations, warranties, covenants, agreements,
          obligations and liabilities under any and all of Sections 7, 8 and 10
          of this Agreement shall survive any termination of this Agreement.

     (b)  COMPANY'S OBLIGATIONS - The Company acknowledges and agrees that its
          representations, warranties, covenants, agreements, obligations and
          liabilities under any and all of Sections 3, 4, 5 and 10 of this
          Agreement shall survive any termination of this Agreement.

     (c)  WITHOUT PREJUDICE - Any termination of this Agreement shall be without
          prejudice to any rights and obligations of the parties arising or
          existing up to the effective date of such expiration or termination,
          or any remedies of the parties with respect thereto.

10.7 WAIVER - The parties agree that any waiver of any breach or default under
     this Agreement shall only be effective if in writing signed by the party
     against whom the waiver is sought to be enforced, and no waiver shall be
     implied by indulgence, delay or other act, omission or conduct. Any waiver
     shall only apply to the specific matter waived and only in the specific
     instance in which it is waived.

10.8 ENTIRE AGREEMENT - The parties agree that the provisions contained in this
     Agreement, The Employee's Change in Control Letter Agreement and any Stock
     Option Agreements between the Company and the Employee constitute the
     entire agreement between QLT and the Employee with respect to the subject
     matters hereof, and supersede all previous communications, understandings
     and agreements (whether verbal or written) between QLT and the Employee
     regarding the subject matters hereof. To the extent that there is any
     conflict between the provisions of this Agreement, the Employee's Change in
     Control Letter Agreement and any Stock Option Agreements between the
     Company and the Employee, the following provisions shall apply:

     (a)  CHANGE IN CONTROL - If the conflict is with respect to an event,
          entitlement or obligation in the case of a Change in Control of the
          Company (as defined in the Change in Control Letter Agreement), the
          provisions of the Change in Control Letter Agreement will govern
          (unless the parties otherwise mutually agree).

     (b)  STOCK OPTIONS - If the conflict is with respect to an entitlement or
          obligation with respect to stock options of the Company, the
          provisions of the Stock Option Agreements will govern (unless the
          parties otherwise mutually agree).

                                    Page 12

<PAGE>

                                                                   EXHIBIT 10.78


      (c)  OTHER - In the event of any other conflict, the provisions of this
           Agreement will govern (unless the parties otherwise mutually agree).

10.9  SEVERABILITY OF PROVISIONS - If any provision of this Agreement as applied
      to either party or to any circumstance is adjudged by a court of competent
      jurisdiction to be void or unenforceable for any reason, the invalidity of
      that provision shall in no way affect (to the maximum extent permissible
      by law):

      (a)  The application of that provision under circumstances different from
           those adjudicated by the court;

      (b)  The application of any other provision of this Agreement; or

      (c)  The enforceability or invalidity of this Agreement as a whole.

      If any provision of this Agreement becomes or is deemed invalid, illegal
      or unenforceable in any jurisdiction by reason of the scope, extent or
      duration of its coverage, then the provision shall be deemed amended to
      the extent necessary to conform to applicable law so as to be valid and
      enforceable or, if the provision cannot be so amended without materially
      altering the intention of the parties, then such provision shall be
      stricken and the remainder of this Agreement will continue in full force
      and effect.

10.10 CAPTIONS - The parties agree that the captions appearing in this Agreement
      have been inserted for reference and as a matter of convenience and in no
      way define, limit or enlarge the scope or meaning of this Agreement or any
      provision.

10.11 AMENDMENTS - Any amendment to this Agreement shall only be effective if
      the amendment is in writing and is signed by the Company and the Employee.



     IN WITNESS WHEREOF the parties have executed this Agreement as of the day
and year first written above.


QLT INC.


BY:  ______________________________                 ____________________________
     LINDA LUPINI                                   MICHAEL J. DOTY         DATE
     VICE PRESIDENT, HUMAN RESOURCES
     & ADMINISTRATION


                                    Page 13




<PAGE>



                                                                   EXHIBIT 10.78








                                  SCHEDULE "A"

                              RELOCATION ASSISTANCE


CERTAIN PAYMENTS MADE TO THE EMPLOYEE UNDER SCHEDULE "A" WILL BE TAXABLE
BENEFITS. THESE PAYMENTS WILL BE GROSSED UP TO MAKE WHOLE ANY TAXABLE BENEFITS
THE EMPLOYEE RECEIVES UNDER SCHEDULE "A" AND THE EMPLOYEE WILL BE PROVIDED WITH
A CHEQUE FOR THIS AMOUNT AT THE END OF THE TAXATION YEAR (MARCH) IN WHICH THE
EXPENSE WAS INCURRED.


1.   Return air fares to Vancouver (tickets provided by QLT) for the Employee
     and the Employee's spouse to find suitable accommodation together with
     hotel and rental of an economy car for a period of 3-4 days.

2.   Six (6) months of interim accommodation upon arrival in Vancouver to a
     maximum of $3,000.00 per month. QLT will assist in locating this
     accommodation, if necessary. As required under the Income Tax Act, these
     payments must be used to provide for temporary accommodation while the
     Employee is waiting to occupy the Employee's new permanent residence,
     otherwise, they will be subject to the same required statutory withholdings
     in Canada as base salary.

3.   Reimbursement of real estate commission fees and reasonable legal expenses
     relating to the sale of the Employee's existing home within two years from
     the Employee's Commencement Date. These payments will be subject to the
     same required statutory withholdings in Canada as base salary.

4.   Reimbursement for reasonable legal expenses on the Employee's purchase of a
     home in Greater Vancouver within two years from the Employee's Commencement
     Date and subject to a maximum reimbursement of $2,000.00.

5.   Reimbursement of the B.C. Property Purchase Tax paid on the Employee's
     residence.

6.   Moving costs for household possessions, including two (2) automobiles, and
     excluding bulky items of low value. QLT will assign a corporate moving
     company.

7.   Moving expenses incurred as a result of moving from the Employee's interim
     accommodations to the Employee's permanent residence in the Greater
     Vancouver area, to a maximum of $2,000.00. QLT will assign a corporate
     moving company.

8.   Reimbursement for the rental of an economy car for a one-month period if
     necessary.


                                    Page 14

<PAGE>

                                                                   EXHIBIT 10.78


9.   One-way air fares for the Employee and the Employee's immediate family from
     the Employee's present location to Vancouver at the time of the move (or
     return air fare for the Employee if the Employee relocates to Vancouver
     prior to the Employee's family).

10.  Accountable allowance: Reimbursement of up to $10,000.00 to cover other
     reasonable expenses associated with the Employee's move. The attached list
     "Other Allowable Expenses" outlines those moving-related expenses which
     Revenue Canada allows us to reimburse the Employee for without incurring a
     taxable benefit. Supporting receipts will be required.

11.  Non-accountable allowance: As part of the Employee's relocation, the
     Employee will likely incur a number of incidental expenses which may not
     appear on the attached list (eg. cleaning costs). QLT will reimburse the
     Employee for these costs up to $650.00 on a tax-free basis in line with
     Revenue Canada's accepted policy for non-accountable allowances (this is in
     addition to the accountable allowance noted above). Note that we do not
     require the Employee to supply supporting receipts for this reimbursement,
     however, the Employee will be required to provide us with a memo certifying
     that the Employee incurred at least this much in incidental costs. Any
     additional reimbursement the Employee receive for "incidentals" that are
     not on the attached list will be considered a taxable benefit.

POTENTIAL REPAYMENT OF RELOCATION ASSISTANCE. In the event of a termination of
employment by the Employee pursuant to Section 5.2 within twenty-four (24)
months from the Commencement Date, the Employee shall be required to reimburse
the Company for a portion of the financial assistance provided by the Company
under this Schedule "A". The amount of the repayment shall be computed by
prorating the amount of the financial assistance by the time remaining in the
twenty-four (24) month period. Such amount shall be payable to the Company
within one hundred and twenty (120) days of the termination of this Agreement.

RELOCATION ASSISTANCE UPON TERMINATION BY THE COMPANY. In the event of a
termination by the Company, other than for just cause, within twenty-four (24)
months from the Commencement Date, the Company shall provide financial
assistance for the Employee to relocate to another location in North America for
purposes of new employment. The amount of such financial assistance shall be
computed in accordance with this Schedule "A", but in no event shall the amount
payable exceed the amount payable under Schedule "A". In addition, the
assistance will only be provided by the Company in the event that the relocation
by the Employee occurs within six (6) months from the date of termination of
employment by QLT.

                                    Page 15

<PAGE>

                                                                   EXHIBIT 10.78



                                  SCHEDULE 2.2

                             ADDITIONAL COMPENSATION



1.   A home relocation loan of $100,000.00 (U.S.) payable to you upon purchase
     of a home in Greater Vancouver within two years from your Commencement
     Date. The loan will be non-interest bearing and forgivable over a 3-year
     period with 33% forgivable each year of continuous employment from the date
     of the loan. There are certain taxable benefit implications associated with
     non-interest bearing, forgivable home relocation loans. The loan will be
     secured by a mortgage granted by you to QLT. In the event that your
     employment is terminated (for any reason) prior to the end of the 3-year
     period, the outstanding balance of the loan will revert to an
     interest-bearing loan due the earlier of the end of the 3-year period or
     the date of the sale of the house. The loan will convert to interest
     bearing at the commercial rate for mortgage loans of the same duration.

2.   QLT will make a recommendation to the Board of Directors, at the next
     scheduled Board meeting, to approve the option for the Employee to purchase
     40,000 common shares of QLT. The options will have a five-year term from
     the date of grant and will vest monthly over three years. The exercise
     price of these signing options will be determined by the closing price on
     the Toronto Stock Exchange on the day prior to granting.

3.   QLT will pay the Employee tax differential payments on a monthly basis
     based on 25% of the Employee's base salary for the Employee's first year of
     employment, 20% for the Employee's second year, 15% for the Employee's
     third year, and 10% for the Employee's fourth year, ending after
     forty-eight (48) months of employment. These payments will be subject to
     the same required statutory withholdings in Canada as base salary.

                                    Page 16





<PAGE>
                                                                   EXHIBIT 10.79
[QLT INC. LOGO]
                              EMPLOYMENT AGREEMENT

          This Employment Agreement is entered into as of June 10, 2002


BETWEEN:

          QLT INC., having an address of 887 Great Northern Way, Vancouver,
          British Columbia, V5T 4T5, Canada,

          ("QLT" or the "COMPANY")

AND:

          WILLIAM J. NEWELL, having an address of 1905 Ray Drive, Burlingame,
          California, 94010, U.S.A.

          ("MR. NEWELL").

WHEREAS:

A.   QLT is a world leader in the development and commercialization of
     proprietary pharmaceutical products for use in photodynamic therapy, an
     emerging field of medicine utilizing light-activated drugs in the treatment
     of disease and has other active development programs ongoing in areas
     outside of photodynamic therapy;

B.   QLT has offered to Mr. Newell, and Mr. Newell has accepted, employment with
     QLT as Senior Vice President & Chief Business Officer.

C.   QLT and Mr. Newell wish to enter into this Agreement to set out the terms
     and conditions of Mr. Newell's employment with QLT.

D.   Employment is subject to Mr. Newell obtaining and maintaining permission of
     Canada Immigration to work in Canada in this position. QLT will reimburse
     Mr. Newell for the costs associated with obtaining employment and permanent
     residence status.

     NOW THEREFORE in consideration of $10.00, the promises
 made by each party
to the other as set out in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which the parties acknowledge and
agree, QLT and Mr. Newell agree as follows:

1.       POSITION AND DUTIES

1.1  POSITION - QLT will employ Mr. Newell in the position of Senior Vice
     President & Chief Business Officer, and Mr. Newell agrees to be employed by
     QLT in this position, subject to the terms and conditions of this
     Agreement.

1.2  DUTIES, REPORTING AND EFFORTS - In the performance of his duties as Senior
     Vice President & Chief Business Officer, Mr. Newell shall, in accordance
     with his Accountability Statement, as may be amended from time to time:

                                     Page 1

<PAGE>

                                                                   EXHIBIT 10.79


     (a)  OVERALL RESPONSIBILITIES - Have overall responsibility for the
          development, implementation and coordination of the Company's
          Corporate Development, Business Development, Legal and Intellectual
          Property policies, objectives and operations in a manner that will
          ensure achievement of the Company's overall long-term strategic
          objectives.

     (b)  CORPORATE DEVELOPMENT DEPARTMENT - Personally undertake and/or
          delegate all senior administrative responsibilities pertaining to the
          day-to-day Corporate Development, Business Development, Legal and
          Intellectual Property functions at QLT, in accordance with policies
          established from time to time by the President of the Company (the
          "PRESIDENT") and by the Board of Directors of the Company (the
          "BOARD").

     (c)  REPORT - Report, as and when required, to the President.

     (d)  BEST EFFORTS - Use his best efforts, industry and knowledge to improve
          and increase QLT's business and to ensure that QLT is at all times in
          compliance with applicable provincial, state, federal and other
          governing statutes, policies and regulations pertaining to QLT
          business, and in particular, project planning and management at QLT.

     (e)  WORKING DAY - Devote the whole of his working day attention and
          energies to the business and affairs of QLT.

2.       COMPENSATION

2.1  ANNUAL COMPENSATION - In return for his services under this Agreement, the
     Company agrees to pay or otherwise provide the following total annual
     compensation to Mr. Newell:

     (a)  BASE SALARY - A base salary in the amount of $290,000.00 (U.S.) in 24
          equal installments payable semi-monthly in arrears, subject to
          periodic reviews at the discretion of the President and the Board.

     (b)  BENEFIT PLANS - Coverage for Mr. Newell and his eligible dependents
          under any employee benefit plans provided by/through QLT to its
          employees, subject to:

          I.   Each plan's terms for eligibility,
          II.  Mr. Newell taking the necessary steps to ensure effective
               enrollment or registration under each plan, and
          III. Customary deductions of employee contributions for the premiums
               of each plan.

          As at the date of this Agreement, the employee benefit plans provided
          by/through QLT to its employees include life insurance, accidental
          death and dismemberment insurance, dependent life insurance,
          vision-care insurance, health insurance, dental insurance and short
          and long term disability insurance. QLT and Mr. Newell agree that
          employee benefit plans provided by/through QLT to its employees may
          change from time to time.

     (c)  EXPENSE REIMBURSEMENT - Reimbursement, in accordance with the
          Company's Policy and Procedures Manual (as amended from time to time),
          of all reasonable business related promotion, entertainment and/or
          travel expenses incurred by Mr. Newell, subject to him maintaining
          proper accounts and providing documentation for these expenses upon
          request.

     (d)  VACATION - Four weeks of paid vacation per year, as may be increased
          from time to time in accordance with QLT's standard vacation policy.
          As per the Company's Policy and Procedures Manual (as amended from
          time to time), unless agreed to in writing by the Company:

                                     Page 2


<PAGE>

                                                                   EXHIBIT 10.79


          I.   All vacation must be taken within one year of the year in which
               it is earned by Mr. Newell, and
          II.  Vacation entitlement shall not be cumulative from year to year.

     (e)  RRSP CONTRIBUTIONS - Provided the conditions set out below have been
          satisfied, in January or February of the year following the year in
          which the income is earned by Mr. Newell (the "INCOME YEAR"), QLT
          shall make a contribution of up to 7% of Mr. Newell's annual base
          salary for the Income Year to Mr. Newell's Registered Retired Savings
          Plan ("RRSP"). The contribution to Mr. Newell's RRSP as set out above
          is subject the following conditions:

          I.   The maximum contribution to be made by the Company to Mr.
               Newell's RRSP is 50% of the annual limit for Registered
               Retirement Savings Plans as established by Revenue Canada for the
               Income Year,

          II.  Mr. Newell must have contributed an equal amount into his RRSP,
               and

          III. Mr. Newell is still actively employed by the Company when the
               matching contribution would otherwise be made.

     (f)  CASH INCENTIVE COMPENSATION PLAN - Participation in the Cash Incentive
          Compensation Plan offered by QLT to its senior executives in
          accordance with the terms of such Plan, as amended from time to time
          by the Board. The amount of the payment granted, if any, is at the
          discretion of the Executive Compensation Committee of the Board.

     (g)  SIGNING STOCK OPTIONS - Conditional on Mr. Newell entering into this
          Agreement, the Board has approved and the Company will grant the
          option for Mr. Newell to purchase 200,000 common shares of QLT. The
          options will be subject to the terms and conditions set out in QLT's
          current Stock Option Incentive Plan, have a five year term from the
          date of grant and will vest monthly in equal numbers over three years.
          The exercise price of these options is $19.71, being the closing price
          on the Toronto Stock Exchange on the trading day immediately prior to
          the date on which Mr. Newell's employment with the Company commenced.
          These options may not be exercised by Mr. Newell until he has
          successfully completed six months' employment with QLT from the
          Commencement Date, and the grant will be conditional upon Mr. Newell
          not having provided a Resignation Notice (as defined below) nor having
          received a written notice of termination from QLT on or before the end
          of the six month period.

     (h)  STOCK OPTION PLAN - Participation in any stock option plan offered by
          QLT to its employees, in accordance with the terms of the plan in
          effect at the time of the stock option offer(s).

2.2  ADDITIONAL COMPENSATION - The Company and Mr. Newell agree to the terms of
     relocation assistance, relocation repayment, and relocation assistance upon
     termination by the Company as set out in SCHEDULE A to this Agreement.

2.3  ANNIVERSARY BONUS - The Company will pay Mr. Newell a one-time bonus of
     $25,000.00 (Canadian), less statutory withholdings, on June 10, 2003,
     provided Mr. Newell has not resigned from employment with the Company prior
     to that date.

3.       RESIGNATION

3.1  RESIGNATION - Mr. Newell may resign from his employment with QLT by giving
     QLT 60 days prior written notice (the "RESIGNATION NOTICE") of the
     effective date of his resignation. On receiving a Resignation Notice, QLT
     may elect to provide the following payments in lieu of notice to Mr. Newell
     and require him to leave the premises forthwith:

                                     Page 3


<PAGE>

                                                                   EXHIBIT 10.79


     (a)  BASE SALARY - Base salary owing to Mr. Newell for the 60-day notice
          period.

     (b)  BENEFITS - Except as set out below in this subparagraph 3.1(b), for
          the 60-day notice period, all employee benefit plan coverage enjoyed
          by Mr. Newell and his eligible dependents prior to the date of his
          Resignation Notice. Mr. Newell acknowledges and agrees that pension
          and short and long term disability plans provided through the Company
          will not be continued beyond the last day that Mr. Newell works at the
          Company's premises (the "LAST ACTIVE DAY").

     (c)  EXPENSE REIMBURSEMENT - Reimbursement (in accordance with the
          Company's Policy and Procedures Manual, as amended from time to time)
          of all reasonable business related promotion, entertainment and/or
          travel expenses incurred by Mr. Newell prior to his Last Active Day,
          subject to the expense reimbursement provisions set out in
          subparagraph 2.1(c).

     (d)  VACATION PAY - Payment in respect of accrued but unpaid vacation pay
          owing to Mr. Newell as at the expiry of the 60-day notice period.

     (e)  PRORATED RRSP CONTRIBUTION - A prorated contribution to Mr. Newell's
          RRSP, the pro-ration to be with respect to the portion of the current
          calendar year worked by Mr. Newell, up to and including the 60-day
          notice period, and the contribution to be subject to the conditions
          set out in subparagraph 2.1(e), except condition III.

3.2  OTHERS - In the event of resignation of Mr. Newell as set out in paragraph
     3.1, the parties agree:

     (a)  NO BONUS - Mr. Newell will have no entitlement to participate in the
          Company's Cash Incentive Compensation Plan for the year in which he
          resigns his employment with QLT; and

     (b)  STOCK OPTION PLAN - Mr. Newell's participation in any stock option
          plan offered by QLT to its employees shall be in accordance with the
          terms of the plan in effect at the time of the stock option offer(s)
          to Mr. Newell.

4.       RETIREMENT

4.1  RETIREMENT - Effective the date of retirement (as defined in the Company'
     Policy and Procedures Manual, as amended from time to time) of Mr. Newell
     from active employment with the Company, the parties agree that:

     (a)  THIS AGREEMENT - Subject to the provisions of paragraph 10.5, both
          parties' rights and obligations under this Agreement will terminate
          without further notice or action by either party.

     (b)  STOCK OPTIONS -Mr. Newell's participation in any stock option plan
          offered by QLT to its employees shall be in accordance with the terms
          of the plan in effect at the time of the stock option offer(s) to Mr.
          Newell.

5.       TERMINATION

5.1  TERMINATION FOR CAUSE - QLT reserves the right to terminate Mr. Newell's
     employment at any time for any reason. Should Mr. Newell be terminated for
     cause, he will not be entitled to any advance notice of termination or pay
     in lieu thereof.

5.2  TERMINATION OTHER THAN FOR CAUSE - QLT reserves the right to terminate Mr.
     Newell's employment at any time without reason. However, if QLT terminates
     Mr. Newell's employment for:

                                     Page 4


<PAGE>

                                                                   EXHIBIT 10.79



     (a)  Any reason other than for cause, or

     (b)  Any reason not covered by a separate Change in Control Letter
          Agreement dated of even date between QLT and Mr. Newell,

     then, except in the case of Mr. Newell becoming completely disabled (which
     is provided for in paragraph 5.7) and subject to the provisions set forth
     below, Mr. Newell shall be entitled to receive notice, pay and/or benefits
     (or any combination of notice, pay and/or benefits) as more particularly
     set out in paragraph 5.3.

5.3  SEVERANCE NOTICE AND PAY - In the event QLT terminates Mr. Newell's
     employment as set out in paragraph 5.2, Mr. Newell shall be entitled to:

     (a)  NOTICE - Advance written notice of termination ("SEVERANCE NOTICE"),
          or pay in lieu thereof ("SEVERANCE Pay"), or any combination of
          Severance Notice and Severance Pay, as more particularly set out
          below:

          I.   A minimum of six months Severance Notice, or Severance Pay in
               lieu thereof, and

          II.  One additional month's Severance Notice for each complete year of
               continuous employment with the Company,

         up to a maximum total of 24 months' Severance Notice, or Severance Pay
         in lieu of Severance Notice. Mr. Newell acknowledges and agrees that
         Severance Pay is in respect of base salary only and will be made on a
         bi-weekly or monthly basis, at the Company's discretion.

     (b)  BENEFITS - Except as set out below, for 30 days after Mr. Newell's
          Last Active Day, all employee benefit plan coverage enjoyed by Mr.
          Newell and his dependents prior to the date of termination.
          Thereafter, and in lieu of employee benefit plan coverage, Mr. Newell
          shall receive compensation ("BENEFITS COMPENSATION") in the amount of
          10% of his base salary for the balance of his Severance Notice period.
          Mr. Newell acknowledges and agrees that pension and short and long
          term disability plans provided through the Company will not be
          continued beyond Mr. Newell's Last Active Day.

     (c)  OUT PLACEMENT COUNSELING - In the event QLT terminates Mr. Newell's
          employment as set out in paragraph 5.2, in the year following
          termination, QLT will pay to an out placement counseling service (to
          be agreed to by Mr. Newell and QLT) a maximum of Cdn $5,000 for
          assistance rendered to Mr. Newell in seeking alternative employment.

     (d)  OTHER COMPENSATION - In the event QLT terminates Mr. Newell's
          employment as set out in paragraph 5.2, the parties further agree as
          follows:

          I.   The Company will reimburse (in accordance with the Company's
               Policy and Procedures Manual, as amended from time to time) Mr.
               Newell for all reasonable business related promotion,
               entertainment and/or travel expenses incurred by Mr. Newell prior
               to the date of termination, subject to the expense reimbursement
               provisions set out in subparagraph 2.1(c).

          II.  The Company will make a payment to Mr. Newell in respect of his
               accrued but unpaid vacation pay to the date of termination.

          III. The Company will make a prorated contribution to Mr. Newell's
               RRSP, the pro-ration to be with respect to the portion of the
               current calendar year worked by Mr. Newell and the contribution
               to 
                                     Page 5


<PAGE>

                                                                   EXHIBIT 10.79

               be subject to the conditions set out in subparagraph 2.1(e),
               except condition III.

          IV.  The Company will make a prorated payment to Mr. Newell in respect
               of his entitlement to participate in the Company's Cash Incentive
               Compensation Plan, the pro-ration to be with respect to the
               portion of the current calendar year worked by Mr. Newell and the
               entitlement to be at the maximum level Mr. Newell would have
               otherwise been eligible to receive in the current calendar year.

          V.   Mr. Newell's participation in any stock option plan offered by
               QLT to its employees shall be in accordance with the terms of the
               plan in effect at the time of the stock option offer(s) to Mr.
               Newell.

5.4  ACKNOWLEDGEMENT - Mr. Newell acknowledges and agrees that in the event QLT
     terminates Mr. Newell's employment as set out in paragraph 5.2, in
     providing:

     (a)  The Severance Notice or Severance Pay, or any combination thereof;
     (b)  The Benefits Compensation;
     (c)  Out placement counseling service as more particularly set out in
          subparagraph 5.3(c); and
     (d)  The other compensation set out in subparagraph 5.3(d);

     the Company shall have no further obligations, statutory or otherwise, to
     Mr. Newell in respect of this Agreement and Mr. Newell's employment under
     this Agreement.

5.5  NO DUPLICATION - In the event that the Severance Pay provisions of this
     Agreement and the payment provisions of the Change in Control Agreement are
     both applicable, Mr. Newell agrees that he will give written notice to the
     Company with respect to which agreement he wishes to be paid out under and
     that he is not entitled to severance pay under both agreements.

5.6       TERMINATION DUE TO INABILITY TO ACT

     (a)  TERMINATION - QLT may immediately terminate this Agreement by giving
          written notice to Mr. Newell if he becomes completely disabled
          (defined below) to the extent that he cannot perform his duties under
          this Agreement either:

          I.   For a period exceeding six consecutive months, or

          II.  For a period of 180 days (not necessarily consecutive) occurring
               during any period of 365 consecutive days,

          and no other reasonable accommodation can be reached between QLT and
          Mr. Newell. Notwithstanding the foregoing, QLT agrees that it will not
          terminate Mr. Newell pursuant to this provision unless and until Mr.
          Newell has been accepted by the insurer for ongoing long-term
          disability payments or, alternatively, has been ruled definitively
          ineligible for such payments.

     (b)  PAYMENTS - In the event of termination of Mr. Newell's employment with
          the Company pursuant to the provisions of this paragraph 5.6, the
          Company agrees to pay to Mr. Newell Severance Pay and Benefits
          Compensation as set out in paragraph 5.3 and in this situation:

          I.   While he is completely disabled Mr. Newell shall have no duty to
               mitigate the payments owing to him by looking for and accepting
               suitable alternative employment or contract(s) for service, and

                                     Page 6


<PAGE>

                                                                   EXHIBIT 10.79


          II.  If Mr. Newell ceases to be completely disabled, then the
               provisions of paragraph 5.3(c) (out placement counseling) shall
               apply.

     (c)  DEFINITION - The term "completely disabled" as used in this paragraph
          5.6 shall mean the inability of Mr. Newell to perform the essential
          functions of his position under this Agreement by reason of any
          incapacity, physical or mental, which the Board, based upon medical
          advice or an opinion provided by a licensed physician acceptable to
          the Board, determines to keep Mr. Newell from satisfactorily
          performing any and all essential functions of his position for the
          Company during the foreseeable future.

5.7  DEATH - Except as set out below, effective the date of death (the "DATE OF
     DEATH") of Mr. Newell, this Agreement and both parties' rights and
     obligations under this Agreement shall terminate without further notice or
     action by either party. Within 30 days after the Date of Death (and the
     automatic concurrent termination of this Agreement), the Company shall pay
     the following amounts to Mr. Newell's estate:

     (a)  BASE SALARY - Base salary owing to Mr. Newell up to his Date of Death.

     (b)  PAYMENT IN LIEU OF BENEFITS - In lieu of employee benefit coverage for
          his eligible dependents after his Date of Death, a payment in the
          amount of 10% of his annual base salary in effect at his Date of
          Death.

     (c)  EXPENSE REIMBURSEMENT - Reimbursement (in accordance with the
          Company's Policy and Procedures Manual, as amended from time to time)
          of all reasonable business related promotion, entertainment and/or
          travel expenses incurred by Mr. Newell prior to his Date of Death,
          subject to the expense reimbursement provisions set out in
          subparagraph 2.1(c).

     (d)  VACATION PAY - Payment in respect of accrued but unpaid vacation pay
          owing to Mr. Newell as at his Date of Death.

     (e)  RRSP CONTRIBUTION - A prorated contribution to Mr. Newell's RRSP, the
          pro-ration to be with respect to the portion of the current calendar
          year worked by Mr. Newell and the contribution to be subject to the
          conditions set out in subparagraph 2.1(e), except condition III.

     (f)  BONUS - A prorated payment to Mr. Newell in respect of his entitlement
          to participate in the Company's Cash Incentive Compensation Plan, the
          pro-ration to be with respect to the portion of the current calendar
          year worked by Mr. Newell and the entitlement to be at the maximum
          level Mr. Newell would have otherwise been eligible to receive in the
          current calendar year.

     After his Date of Death, Mr. Newell's participation and/or entitlement
     under any stock option plan offered by QLT to its employees shall be in
     accordance with the terms of the plan in effect at the time of the stock
     option offer(s) to Mr. Newell.

6.       CONFLICT OF INTEREST

6.1  AVOID CONFLICT OF INTEREST - Except as set out below, during the term of
     his employment with QLT, Mr. Newell agrees to conduct himself in accordance
     with the conflict of interest provisions set out in QLT's Code of Ethics.
     The Company and Mr. Newell acknowledge and agree that from time to time the
     President may consent in writing to activities by Mr. Newell which might
     otherwise appear to be a real or apparent conflict of interest.

6.2  NO FINANCIAL ADVANTAGE - During the term of his employment with QLT, Mr.
     Newell agrees that neither he nor any members of his immediate family will
     take financial advantage of or benefit 

                                     Page 7


<PAGE>

                                                                   EXHIBIT 10.79


     financially from information that is obtained in the course of his
     employment related duties and responsibilities unless the information is
     generally available to the public.

6.3  COMPLY WITH POLICIES - During the term of his employment with QLT, Mr.
     Newell agrees to comply with all written policies issued by QLT dealing
     with conflicts of interest.

6.4  BREACH EQUALS CAUSE - Mr. Newell acknowledges and agrees that breach by him
     of the provisions of this Section 6 shall be cause for immediate
     termination by the Company of his employment with the Company.

7.       CONFIDENTIALITY

7.1  INFORMATION HELD IN TRUST - Mr. Newell acknowledges and agrees that all
     business and trade secrets, confidential information and knowledge which
     Mr. Newell acquires during his employment with QLT relating to the business
     and affairs of QLT or to technology, systems, programs, ideas, products or
     services which have been or are being developed or utilized by QLT, or in
     which QLT is or may become interested (collectively, "CONFIDENTIAL
     INFORMATION"), shall for all purposes and at all times, both during the
     term of Mr. Newell's employment with the Company and at all times
     thereafter, be held by Mr. Newell in trust for the exclusive benefit of the
     Company.

7.2  NON DISCLOSURE -Mr. Newell acknowledges and agrees that both during the
     term of his employment with QLT and at all times thereafter, without the
     express or implied consent of QLT, Mr. Newell will not:

     (a)  DISCLOSE - Disclose to any company, firm or person, other than QLT and
          its directors and officers, any of the private affairs of QLT or any
          Confidential Information of QLT; or

     (b)  USE - Use any Confidential Information that he may acquire with
          respect to QLT's affairs for his own purposes or for any purposes,
          other than those of the Company.

7.3      INTELLECTUAL PROPERTY RIGHTS

     (a)  DISCLOSE INVENTIONS - Mr. Newell agrees to promptly disclose to QLT
          any and all ideas, developments, designs, articles, inventions,
          improvements, discoveries, machines, appliances, processes, methods,
          products or the like (collectively, "INVENTIONS") that Mr. Newell may
          invent, conceive, create, design, develop, prepare, author, produce or
          reduce to practice, either solely or jointly with others, in the
          course of his employment with the Company.

     (b)  INVENTIONS ARE QLT PROPERTY - All Inventions and all other work of Mr.
          Newell in the course of his employment with the Company shall at all
          times and for all purposes be the property of QLT for QLT to use,
          alter, vary, adapt and exploit as it shall see fit, and shall be
          acquired or held by Mr. Newell in a fiduciary capacity solely for the
          benefit of QLT.

     (c)  ADDITIONAL REQUIREMENTS - Mr. Newell agrees to:

          I.   Treat all information with respect to Inventions as Confidential
               Information.
          II.  Keep complete and accurate records of Inventions, which records
               shall be the property of QLT and copies of which records shall be
               maintained at the premises of QLT.
          III. Execute all assignments and other documents required to assign
               and transfer to QLT (or such other persons as QLT may direct) all
               right, title and interest in and to the Inventions and all other
               work of Mr. Newell in the course of his employment with the
               Company, and all writings, drawings, diagrams, photographs,
               pictures, plans, manuals, software and other materials, goodwill
               and ideas relating thereto, including, but not limited to, all
               rights to acquire in the name 

                                     Page 8


<PAGE>

                                                                   EXHIBIT 10.79


               of QLT or its nominee(s) patents, registration of copyrights,
               design patents and registrations, trade marks and other forms of
               protection that may be available.
          IV.  Execute all documents and do all acts reasonably requested by QLT
               to give effect to this provision.

7.4  RECORDS - Mr. Newell agrees that all records or copies of records
     concerning QLT's activities, business interests or investigations made or
     received by him during his employment with QLT are and shall remain the
     property of QLT. He further agrees to keep such records or copies in the
     custody of QLT and subject to its control, and to surrender the same at the
     termination of his employment or at any time during his employment at QLT's
     request.

7.5  NO USE OF FORMER EMPLOYER'S MATERIALS - Mr. Newell certifies that he has
     not brought to QLT and will not use while performing his employment duties
     for QLT any materials or documents of any former employer which are not
     generally available to the public, except if the right to use the materials
     or documents has been duly licensed to QLT by the former employer.

8.       POST-EMPLOYMENT RESTRICTIONS

8.1  NON-COMPETE - Mr. Newell agrees that, without the prior written consent of
     QLT, which consent will not be unreasonably withheld, for a period of one
     year following termination of his employment with the Company for any
     reason (by resignation or otherwise), as measured from his Last Active Day,
     Mr. Newell shall not directly or indirectly, own, manage, operate, join,
     control or participate in the ownership, management, operation or control
     of, or be a director or an employee of, or a consultant to, any business,
     firm or corporation that, as a part of conducting its business, is in any
     way competitive with QLT with respect to the development and/or
     commercialization and/or marketing of light-activated pharmaceutical
     products for photodynamic therapy in the treatment of cancer, opthalmic, or
     auto-immune disease anywhere in Canada, the United States or Europe.


8.2  ADDITIONAL RESTRICTIONS - Mr. Newell agrees that, for a period of two years
     following termination of his employment with the Company for any reason (by
     resignation or otherwise), as measured from his Last Active Day, he will
     not:

     (a)  SOLICIT ON BEHALF OF A COMPETITIVE BUSINESS - directly or indirectly
          call upon or solicit any QLT employee or QLT customer or known
          prospective customer of QLT on behalf of any business, firm or
          corporation that, as part of conducting its business, is in any way
          competitive with QLT with respect to:

          I.   The development and/or commercialization and/or marketing of
               light-activated pharmaceutical products for photodynamic therapy
               in the treatment of cancer, opthalmic, auto-immune and
               cardiovascular disease, or
          II.  If the core technology base of the Company diversifies beyond
               photodynamic therapy, the development and/or commercialization
               and/or marketing of pharmaceutical products that are based on a
               significantly similar technology platform and are used in the
               treatment of substantially the same medical indications as
               products which have become a significant component of the
               Company's core business,

          anywhere in Canada, the United States or Europe.

     (b)  SOLICIT EMPLOYEES - directly or indirectly solicit any individual to
          leave QLT's employment for any reason or interfere in any other manner
          with the employment relationship existing between QLT and its current
          or prospective employees.


                                     Page 9


<PAGE>

                                                                   EXHIBIT 10.79


     (c)  SOLICIT CUSTOMERS - directly or indirectly induce or attempt to induce
          any customer, supplier, distributor, licensee or other business
          relation of QLT to cease doing business with QLT or in any way
          interfere with the existing business relationship between any such
          customer, supplier, distributor, licensee or other business relation
          and QLT.

8.3  MINORITY SHARE INTERESTS ALLOWED - The parties agree that nothing contained
     in paragraph 8.1 is intended to prohibit Mr. Newell from owning any
     minority interest in any company where stock or shares are traded publicly.

9.       REMEDIES

9.1  IRREPARABLE DAMAGE - Mr. Newell acknowledges and agrees that:

     (a)  BREACH - Any breach of any provision of this Agreement could cause
          irreparable damage to QLT; and

     (b)  CONSEQUENCES OF BREACH - In the event of a breach of any provision of
          this Agreement by him, QLT shall have, in addition to any and all
          other remedies at law or in equity, the right to an injunction,
          specific performance or other equitable relief to prevent any
          violation by him of any of the provisions of this Agreement including,
          without limitation, the provisions of Sections 7 and 8.

9.2  INJUNCTION - In the event of any dispute under Sections 7 and/or 8, Mr.
     Newell agrees that QLT shall be entitled, without showing actual damages,
     to a temporary or permanent injunction restraining his conduct, pending a
     determination of such dispute and that no bond or other security shall be
     required from QLT in connection therewith.

9.3  ADDITIONAL REMEDIES - Mr. Newell acknowledges and agrees that the remedies
     of QLT specified in this Agreement are in addition to, and not in
     substitution for, any other rights and remedies of QLT at law or in equity
     and that all such rights and remedies are cumulative and not alternative or
     exclusive of any other rights or remedies and that QLT may have recourse to
     any one or more of its available rights and remedies as it shall see fit.

10.      GENERAL MATTERS

10.1 TAX WITHHELD - The parties acknowledge and agree that all payments to be
     made by the Company to Mr. Newell under this Agreement will be subject to
     the Company's withholding of applicable withholding taxes.

10.2 INDEPENDENT LEGAL ADVICE - Mr. Newell acknowledges that he has obtained or
     had the opportunity to obtain independent legal advice with respect to this
     Agreement and all of its terms and conditions.

10.3 BINDING AGREEMENT - The parties agree that this Agreement shall enure to
     the benefit of and be binding upon each of them and their respective heirs,
     executors, successors and assigns.

10.4 GOVERNING LAW - The parties agree that this Agreement shall be governed by
     and interpreted in accordance with the laws of the Province of British
     Columbia and the laws of Canada applicable to this Agreement. All disputes
     arising under this Agreement will be referred to the Courts of the Province
     of British Columbia, which will have exclusive jurisdiction, unless there
     is mutual agreement to the contrary.

     (a)  NOTICE - The parties agree that any notice or other communication
          required to be given under this Agreement shall be in writing and
          shall be delivered personally to the addresses set forth on page 1 


                                     Page 10


<PAGE>

                                                                   EXHIBIT 10.79

          of this Agreement, and in the case of notice to the Company, shall be
          addressed to the attention of the President.

     or to such other addresses and persons as may from time to time be notified
     in writing by the parties. Any notice delivered personally shall be deemed
     to have been given and received at the time of delivery.

10.5     SURVIVAL OF TERMS

     (a)  MR. NEWELL'S OBLIGATIONS -Mr. Newell acknowledges and agrees that his
          representations, warranties, covenants, agreements, obligations and
          liabilities under any and all of Sections 7, 8 and 10 of this
          Agreement shall survive any termination of this Agreement.

     (b)  COMPANY'S OBLIGATIONS - The Company acknowledges and agrees that its
          representations, warranties, covenants, agreements, obligations and
          liabilities under any and all of Sections 3, 4, 5 and 10 of this
          Agreement shall survive any termination of this Agreement.

     (c)  WITHOUT PREJUDICE - Any termination of this Agreement shall be without
          prejudice to any rights and obligations of the parties arising or
          existing up to the effective date of such expiration or termination,
          or any remedies of the parties with respect thereto.

10.6 WAIVER - The parties agree that any waiver of any breach or default under
     this Agreement shall only be effective if in writing signed by the party
     against whom the waiver is sought to be enforced, and no waiver shall be
     implied by indulgence, delay or other act, omission or conduct. Any waiver
     shall only apply to the specific matter waived and only in the specific
     instance in which it is waived.

10.7 ENTIRE AGREEMENT - The parties agree that the provisions contained in this
     Agreement, Mr. Newell's Change in Control Letter Agreement and any Stock
     Option Agreements between the Company and Mr. Newell constitute the entire
     agreement between QLT and Mr. Newell with respect to the subject matters
     hereof, and supersede all previous communications, understandings and
     agreements (whether verbal or written) between QLT and Mr. Newell regarding
     the subject matters hereof. To the extent that there is any conflict
     between the provisions of this Agreement, Mr. Newell's Change in Control
     Letter Agreement and any Stock Option Agreements between the Company and
     Mr. Newell, the following provisions shall apply:

     (a)  CHANGE IN CONTROL - If the conflict is with respect to an event,
          entitlement or obligation in the case of a Change in Control of the
          Company (as defined in the Change in Control Letter Agreement), the
          provisions of the Change in Control Letter Agreement will govern
          (unless the parties otherwise mutually agree).

     (b)  STOCK OPTIONS - If the conflict is with respect to an entitlement or
          obligation with respect to stock options of the Company, the
          provisions of the Stock Option Agreements will govern (unless the
          parties otherwise mutually agree).

     (c)  OTHER - In the event of any other conflict, the provisions of this
          Agreement will govern (unless the parties otherwise mutually agree).

10.8 SEVERABILITY OF PROVISIONS - If any provision of this Agreement as applied
     to either party or to any circumstance is adjudged by a court of competent
     jurisdiction to be void or unenforceable for any reason, the invalidity of
     that provision shall in no way affect (to the maximum extent permissible by
     law):

     (a)  The application of that provision under circumstances different from
          those adjudicated by the court;

                                     Page 11


<PAGE>

                                                                   EXHIBIT 10.79


      (b)  The application of any other provision of this Agreement; or

      (c)  The enforceability or invalidity of this Agreement as a whole.

      If any provision of this Agreement becomes or is deemed invalid, illegal
      or unenforceable in any jurisdiction by reason of the scope, extent or
      duration of its coverage, then the provision shall be deemed amended to
      the extent necessary to conform to applicable law so as to be valid and
      enforceable or, if the provision cannot be so amended without materially
      altering the intention of the parties, then such provision shall be
      stricken and the remainder of this Agreement will continue in full force
      and effect.

10.9  CAPTIONS - The parties agree that the captions appearing in this Agreement
      have been inserted for reference and as a matter of convenience and in no
      way define, limit or enlarge the scope or meaning of this Agreement or any
      provision.

10.10 AMENDMENTS - Any amendment to this Agreement shall only be effective if
      the amendment is in writing and is signed by the Company and Mr. Newell.


     IN WITNESS WHEREOF the parties have executed this Agreement as of the day
and year first written above.


QLT INC.


BY:  ____________________________                    ___________________________
     LINDA LUPINI                                    WILLIAM J. NEWELL
     VICE PRESIDENT, HUMAN RESOURCES
     & ADMINISTRATION


                                     Page 12


<PAGE>


                                                                   EXHIBIT 10.79


                                   SCHEDULE A

                              RELOCATION ASSISTANCE

CERTAIN PAYMENTS MADE TO MR. NEWELL UNDER SCHEDULE "A" WILL BE TAXABLE BENEFITS.
THESE PAYMENTS WILL BE GROSSED UP TO MAKE WHOLE ANY TAXABLE BENEFITS MR. NEWELL
RECEIVES UNDER SCHEDULE "A" AND MR. NEWELL WILL BE PROVIDED WITH A CHEQUE FOR
THIS AMOUNT AT THE END OF THE TAXATION YEAR (MARCH) IN WHICH THE EXPENSE WAS
INCURRED.

1.   Return air fares (tickets provided by QLT) and expenses covered for weekend
     commute to San Francisco from May to September 2002.

2.   Return air fares (tickets provided by QLT) and expenses covered for Mr.
     Newell's family trips to Vancouver, from May to September 2002, or until
     family relocation is complete.

3.   Return air fares to Vancouver (tickets provided by QLT) for Mr. Newell and
     Mr. Newell's spouse to find suitable accommodation together with hotel and
     rental of an economy car for a period of 3-4 days.

4.   Five (5) months of interim accommodation upon arrival in Vancouver to a
     maximum of $3,000.00 per month. QLT will assist in locating this
     accomodation, if necessary. As required under the Income Tax Act, these
     payments must be used to provide for temporary accommodation while Mr.
     Newell is waiting to occupy Mr. Newell's new permanent residence,
     otherwise, they will be subject to the same required statutory withholdings
     in Canada as base salary.

5.   Reimbursement of real estate commission fees and reasonable legal expenses
     relating to the sale of Mr. Newell's existing home within two years from
     Mr. Newell's Commencement Date. These payments will be subject to the same
     required statutory withholdings in Canada as base salary.

6.   Reimbursement for reasonable legal expenses on Mr. Newell's purchase of a
     home in Greater Vancouver within two years from Mr. Newell's Commencement
     Date and subject to a maximum reimbursement of $2,000.00.

7.   Reimbursement of the B.C. Property Purchase Tax paid on Mr. Newell's
     residence.

8.   Moving costs for household possessions, including one (1) automobile, and
     excluding bulky items of low value. QLT will assign a corporate moving
     company.

9.   Moving expenses incurred as a result of moving from Mr. Newell's interim
     accommodations to Mr. Newell's permanent residence in the Greater Vancouver
     area, to a maximum of $2,000.00. QLT will assign a corporate moving
     company.

10.  Reimbursement for the rental of an economy car for a one-month period if
     necessary.

11.  One-way air fares for Mr. Newell and Mr. Newell's immediate family from Mr.
     Newell's present location to Vancouver at the time of the move (or return
     air fare for Mr. Newell if Mr. Newell relocates to Vancouver prior to Mr.
     Newell's family).

12.  Accountable allowance: Reimbursement of up to $10,000.00 to cover other
     reasonable expenses associated with Mr. Newell's move. The attached list
     "Other Allowable Expenses" outlines those moving-related expenses which
     Canada Customs and Revenue Agency (CCRA) allows us to reimburse Mr. Newell
     for without incurring a taxable benefit. Supporting receipts will be
     required.

     Non-accountable allowance: As part of Mr. Newell's relocation, Mr. Newell
     will likely incur a number of incidental expenses which may not appear on
     the attached list (e.g. cleaning costs). QLT will reimburse Mr. Newell for
     these costs up to $650.00 on a tax-free basis in line with CCRA's accepted
     policy for non-accountable allowances (this is in addition to the
     accountable allowance noted above). Note that we do not require Mr. Newell
     to supply supporting receipts for this reimbursement, however, Mr. Newell
     will be required to provide us with a memo certifying that Mr. Newell
     incurred at least this much in incidental costs. If Mr. Newell does not
     provide QLT with this memo, these costs will be treated as a taxable
     benefit. Any additional reimbursement t Mr. Newell receives for
     "incidentals" that are not on the attached list will be considered a
     taxable benefit.

                                     Page 13

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                                                                   EXHIBIT 10.79











                                     Page 14


<PAGE>
                                                                   EXHIBIT 10.80

                              EMPLOYMENT AGREEMENT

           This Employment Agreement dated for reference May 19, 2000.

BETWEEN:

          QLT INC., having an address of 887 Great Northern Way, Vancouver,
          British Columbia, V5T 4T5, Canada,

          ("QLT" or the "COMPANY")

AND:

          DR. ALAIN CURAUDEAU, having an address of 501 Brighton Circle, Devon,
          Pennsylvania 19333, USA,

          ("DR. CURAUDEAU" or the "EMPLOYEE")

WHEREAS:

A.   QLT is a world leader in the development and commercialization of
     proprietary pharmaceutical products for use in photodynamic therapy, an
     emerging field of medicine utilizing light-activated drugs in the treatment
     of disease;

B.   QLT has offered to Dr. Curaudeau, and Dr. Curaudeau has accepted,
     employment with QLT as Vice President of Project Planning and Management;
     and

C.   QLT and Dr. Curaudeau wish to enter into this Agreement to set out the
     terms and conditions of Dr. Curaudeau's employment with QLT.

     NOW THEREFORE in consideration of $10.00, the promises made by each party
to the other as set out in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which the parties acknowledge and
agree, QLT and Dr. Curaudeau agree as follows:

1.       POSITION AND DUTIES

1.1  POSITION - QLT will employ Dr. Curaudeau in the position of Vice President,

     Project Planning and Management, and Dr. Curaudeau agrees to be employed by
     QLT in this position, subject to the terms and conditions of this
     Agreement.

1.2  DUTIES, REPORTING AND EFFORTS - In the performance of his duties as
     Vice-President, Project Planning and Management, Dr. Curaudeau shall, in
     accordance with his Accountability Statement, as may be amended from time
     to time:

     (a)  OVERALL RESPONSIBILITIES - Have overall responsibility for the
          development, implementation and coordination of the Company's project
          planning and management policies, objectives and operations in a
          manner that will ensure achievement of the Company's overall long-term
          strategic objectives.

     (b)  PROJECT PLANNING AND MANAGEMENT - Personally undertake and/or delegate
          all senior administrative responsibilities pertaining to day-to-day
          project planning and management at QLT, in accordance with policies
          established from time to time by the President of the Company (the


                                     Page 1

<PAGE>

                                                                   EXHIBIT 10.80


          "PRESIDENT") and by the Board of Directors of the Company (the
          "BOARD").

     (c)  REPORT - Report, as and when required, to the President.

     (d)  BEST EFFORTS - Use his best efforts, industry and knowledge to improve
          and increase QLT's business and to ensure that QLT is at all times in
          compliance with applicable provincial, state, federal and other
          governing statutes, policies and regulations pertaining to QLT
          business, and in particular, project planning and management at QLT.

     (e)  WORKING DAY - Devote the whole of his working day attention and
          energies to the business and affairs of QLT.

2.       COMPENSATION

2.1  ANNUAL COMPENSATION - In return for his services under this Agreement, the
     Company agrees to pay or otherwise provide the following total annual
     compensation to Dr. Curaudeau:

     (a)  BASE SALARY - A base salary in the amount of US$170,000 in 24 equal
          installments payable semi-monthly in arrears, subject to periodic
          reviews at the discretion of the President and the Board.

     (b)  BENEFIT PLANS - Coverage for Dr. Curaudeau and his eligible dependents
          under any employee benefit plans provided by/through QLT to its
          employees, subject to:

          I.   Each plan's terms for eligibility,
          II.  Dr. Curaudeau taking the necessary steps to ensure effective
               enrollment or registration under each plan, and
          III. Customary deductions of employee contributions for the premiums
               of each plan.

         As at the date of this Agreement, the employee benefit plans provided
         by/through QLT to its employees include life insurance, accidental
         death and dismemberment insurance, dependent life insurance,
         vision-care insurance, health insurance, dental insurance and short and
         long term disability insurance. QLT and Dr. Curaudeau agree that the
         employee benefit plans provided by/through QLT to its employees may
         change from time to time.

     (c)  EXPENSE REIMBURSEMENT - Reimbursement, in accordance with the
          Company's Policy and Procedures Manual (as amended from time to time),
          of all reasonable business related promotion, entertainment and/or
          travel expenses incurred by Dr. Curaudeau, subject to him maintaining
          proper accounts and providing documentation for these expenses upon
          request.

     (d)  VACATION - Four weeks of paid vacation per year, as may be increased
          from time to time in accordance with QLT's standard vacation policy.
          As per the Company's Policy and Procedures Manual (as amended from
          time to time), unless agreed to in writing by the Company:

          I.   All vacation must be taken within one year of the year in which
               it is earned by Dr. Curaudeau, and
          II.  Vacation entitlement shall not be cumulative from year to year.

     (e)  RRSP CONTRIBUTIONS - Provided the conditions set out below have been
          satisfied, in January or February of the year following the year in
          which the income is earned by Dr. Curaudeau (the "INCOME YEAR"), QLT
          shall make a contribution of up to 7% of Dr. Curaudeau's annual base
          salary for the Income Year to Dr. Curaudeau's Registered Retired
          Savings Plan ("RRSP"). The contribution to Dr. Curaudeau's RRSP as set
          out above is subject the following conditions:


                                     Page 2

<PAGE>

                                                                   EXHIBIT 10.80


          I.   The maximum contribution to be made by the Company to Dr.
               Curaudeau's RRSP is 50% of the annual limit for Registered
               Retirement Savings Plans as established by Revenue Canada for the
               Income Year,

          II.  Dr. Curaudeau must have contributed an equal amount into his
               RRSP, and

          III. Dr. Curaudeau is still actively employed by the Company when the
               matching contribution would otherwise be made.

     (f)  CASH INCENTIVE COMPENSATION PLAN - Participation in the Cash Incentive
          Compensation Plan offered by QLT to its senior executives in
          accordance with the terms of such Plan, as amended from time to time
          by the Board. The amount of the payment granted, if any, is at the
          discretion of the Executive Compensation Committee of the Board.

     (g)  STOCK OPTION PLAN - Participation in any stock option plan offered by
          QLT to its employees, in accordance with the terms of the plan in
          effect at the time of the stock option offer(s).

2.2  ADDITIONAL COMPENSATION - In return for his services under this Agreement,
     the Company also agrees to pay or otherwise provide additional special
     compensation to Dr. Curaudeau as more particularly set out in SCHEDULE A to
     this Agreement.

3.       RESIGNATION

3.1  RESIGNATION - Dr. Curaudeau may resign from his employment with QLT by
     giving QLT 60 days prior written notice (the "RESIGNATION NOTICE") of the
     effective date of his resignation. On receiving a Resignation Notice, QLT
     may elect to provide the following payments in lieu of notice to Dr.
     Curaudeau and require him to leave the premises forthwith:

     (a)  BASE SALARY - Base salary owing to Dr. Curaudeau for the 60-day notice
          period.

     (b)  BENEFITS - Except as set out below in this subparagraph 3.1(b), for
          the 60-day notice period, all employee benefit plan coverage enjoyed
          by Dr. Curaudeau and his eligible dependents prior to the date of his
          Resignation Notice. Dr. Curaudeau acknowledges and agrees that pension
          and short and long term disability plans provided through the Company
          will not be continued beyond the last day that Dr. Curaudeau works at
          the Company's premises (the "LAST ACTIVE DAY").

     (c)  EXPENSE REIMBURSEMENT - Reimbursement (in accordance with the
          Company's Policy and Procedures Manual, as amended from time to time)
          of all reasonable business related promotion, entertainment and/or
          travel expenses incurred by Dr. Curaudeau prior to his Last Active
          Day, subject to the expense reimbursement provisions set out in
          subparagraph 2.1(c).

     (d)  VACATION PAY - Payment in respect of accrued but unpaid vacation pay
          owing to Dr. Curaudeau as at the expiry of the 60-day notice period.

     (e)  PRORATED RRSP CONTRIBUTION - A prorated contribution to Dr.
          Curaudeau's RRSP, the pro-ration to be with respect to the portion of
          the current calendar year worked by Dr. Curaudeau, up to and including
          the 60-day notice period, and the contribution to be subject to the
          conditions set out in subparagraph 2.1(e), except condition III.

3.2  OTHERS - In the event of resignation of Dr. Curaudeau as set out in
     paragraph 3.1, the parties agree:



                                     Page 3

<PAGE>

                                                                   EXHIBIT 10.80


     (a)  NO BONUS - Dr. Curaudeau will have no entitlement to participate in
          the Company's Cash Incentive Compensation Plan for the year in which
          he resigns his employment with QLT; and

     (b)  STOCK OPTION PLAN - Dr. Curaudeau's participation in any stock option
          plan offered by QLT to its employees shall be in accordance with the
          terms of the plan in effect at the time of the stock option offer(s)
          to Dr. Curaudeau.

4.       RETIREMENT

4.1  RETIREMENT - Effective the date of retirement (as defined in the Company'
     Policy and Procedures Manual, as amended from time to time) of Dr.
     Curaudeau from active employment with the Company, the parties agree that:

     (a)  THIS AGREEMENT - Subject to the provisions of paragraph 10.6, both
          parties' rights and obligations under this Agreement will terminate
          without further notice or action by either party.

     (b)  STOCK OPTIONS - Dr. Curaudeau's participation in any stock option plan
          offered by QLT to its employees shall be in accordance with the terms
          of the plan in effect at the time of the stock option offer(s) to Dr.
          Curaudeau.

5.       TERMINATION

5.1  TERMINATION FOR CAUSE - QLT reserves the right to terminate Dr. Curaudeau's
     employment at any time for any reason. Should Dr. Curaudeau be terminated
     for cause, he will not be entitled to any advance notice of termination or
     pay in lieu thereof.

5.2  TERMINATION OTHER THAN FOR CAUSE - QLT reserves the right to terminate Dr.
     Curaudeau's employment at any time without reason. However, if QLT
     terminates Dr. Curaudeau's employment for:

     (a)  Any reason other than for cause, or

     (b)  Any reason not covered by a separate Change in Control Letter
          Agreement dated of even date between QLT and Dr. Curaudeau,

     then, except in the case of Dr. Curaudeau becoming completely disabled
     (which is provided for in paragraph 5.8) and subject to the provisions set
     forth below, Dr. Curaudeau shall be entitled to receive notice, pay and/or
     benefits (or any combination of notice, pay and/or benefits) as more
     particularly set out in paragraph 5.3.

5.3  SEVERANCE NOTICE AND PAY - In the event QLT terminates Dr. Curaudeau's
     employment as set out in paragraph 5.2, Dr. Curaudeau shall be entitled to:

     (a)  NOTICE - Advance written notice of termination ("SEVERANCE NOTICE"),
          or pay in lieu thereof ("SEVERANCE Pay"), or any combination of
          Severance Notice and Severance Pay, as more particularly set out
          below:

          I.   A minimum of six months Severance Notice, or Severance Pay in
               lieu thereof, and

          II.  One additional month's Severance Notice for each complete year of
               continuous employment with the Company,

         up to a maximum total of 24 months' Severance Notice, or Severance Pay
         in lieu of Severance 


                                     Page 4

<PAGE>

                                                                   EXHIBIT 10.80


          Notice. Dr. Curaudeau acknowledges and agrees that Severance Pay is in
          respect of base salary only and will be made on a bi-weekly or monthly
          basis, at the Company's discretion.

     (b)  BENEFITS - Except as set out below, for 30 days after Dr. Curaudeau's
          Last Active Day, all employee benefit plan coverage enjoyed by Dr.
          Curaudeau and his dependents prior to the date of termination.
          Thereafter, and in lieu of employee benefit plan coverage, Dr.
          Curaudeau shall receive compensation ("BENEFITS COMPENSATION") in the
          amount of 10% of his base salary for the balance of his Severance
          Notice period. Dr. Curaudeau acknowledges and agrees that pension and
          short and long term disability plans provided through the Company will
          not be continued beyond Dr. Curaudeau's Last Active Day.

     (c)  OUT PLACEMENT COUNSELING - In the event QLT terminates Dr. Curaudeau's
          employment as set out in paragraph 5.2, in the year following
          termination, QLT will pay to an out placement counseling service (to
          be agreed to by Dr. Curaudeau and QLT) a maximum of Cdn$5,000 for
          assistance rendered to Dr. Curaudeau in seeking alternative
          employment.

     (d)  OTHER COMPENSATION - In the event QLT terminates Dr. Curaudeau's
          employment as set out in paragraph 5.2, the parties further agree as
          follows:

          I.   The Company will reimburse (in accordance with the Company's
               Policy and Procedures Manual, as amended from time to time) Dr.
               Curaudeau for all reasonable business related promotion,
               entertainment and/or travel expenses incurred by Dr. Curaudeau
               prior to the date of termination, subject to the expense
               reimbursement provisions set out in subparagraph 2.1(c).

          II.  The Company will make a payment to Dr. Curaudeau in respect of
               his accrued but unpaid vacation pay to the date of termination.

          III. The Company will make a prorated contribution to Dr. Curaudeau's
               RRSP, the pro-ration to be with respect to the portion of the
               current calendar year worked by Dr. Curaudeau and the
               contribution to be subject to the conditions set out in
               subparagraph 2.1(e), except condition III.

          IV.  The Company will make a prorated payment to Dr. Curaudeau in
               respect of his entitlement to participate in the Company's Cash
               Incentive Compensation Plan, the pro-ration to be with respect to
               the portion of the current calendar year worked by Dr. Curaudeau
               and the entitlement to be at the maximum level Dr. Curaudeau
               would have otherwise been eligible to receive in the current
               calendar year.

          V.   Dr. Curaudeau's participation in any stock option plan offered by
               QLT to its employees shall be in accordance with the terms of the
               plan in effect at the time of the stock option offer(s) to Dr.
               Curaudeau.

5.4  ACKNOWLEDGEMENT - Dr. Curaudeau acknowledges and agrees that in the event
     QLT terminates Dr. Curaudeau's employment as set out in paragraph 5.2, in
     providing:

     (a)  The Severance Notice or Severance Pay, or any combination thereof;
     (b)  The Benefits Compensation;
     (c)  Out placement counseling service as more particularly set out in
          subparagraph 5.3(c); and
     (d)  The other compensation set out in subparagraph 5.3(d);

     the Company shall have no further obligations, statutory or otherwise, to
     Dr. Curaudeau in respect of this Agreement and Dr. Curaudeau's employment
     under this Agreement.



                                     Page 5

<PAGE>

                                                                   EXHIBIT 10.80


5.5  DUTY TO MITIGATE

     (a)  DUTY TO MITIGATE - Dr. Curaudeau acknowledges and agrees that if his
          employment is terminated as set out in paragraph 5.2, his entitlement
          to Severance Pay, Benefits Compensation and other compensation as set
          out in paragraph 5.3 is subject to his duty to mitigate such payments
          by looking for and accepting suitable alternative employment or
          contract(s) for services.

     (b)  NOTICE - If Dr. Curaudeau obtains new employment or contract(s) for
          services of four weeks or longer, Dr. Curaudeau agrees that he will
          notify QLT of this fact in writing (the "NEW EMPLOYMENT NOTICE")
          within five working days of such an occurrence and in this event the
          following provisions apply:

          I.   Dr. Curaudeau acknowledges and agrees that his entitlement to
               Severance Pay and Benefits Compensation will cease as of the date
               on which his new employment or contract for services commences.

          II.  Within 10 working days of receipt of the New Employment Notice
               from Dr. Curaudeau, QLT agrees that it will pay Dr. Curaudeau a
               lump sum amount equivalent to 50% of the Severance Pay and
               Benefits Compensation as set out in paragraph 5.3 otherwise owing
               to Dr. Curaudeau for the balance of the Severance Notice period.

5.6  FUNDAMENTAL BREACH - Dr. Curaudeau acknowledges and agrees that failure by
     him to provide the New Employment Notice to QLT within five working days as
     set out in paragraph 5.5, or him providing employment or contract(s) for
     services to a company which is in direct competition with QLT in breach of
     paragraph 8.1, will be deemed to be a fundamental breach of this Agreement
     and QLT's obligations to pay Severance Pay, Benefits Compensation and other
     compensation as set out in paragraph 5.3 shall cease immediately.

5.7  NO DUPLICATION - In the event that the Severance Pay provisions of this
     Agreement and the payment provisions of the Change in Control Agreement are
     both applicable, Dr. Curaudeau agrees that he will give written notice to
     the Company with respect to which agreement he wishes to be paid out under
     and that he is not entitled to severance pay under both agreements.

5.8       TERMINATION DUE TO INABILITY TO ACT

     (a)  TERMINATION - QLT may immediately terminate this Agreement by giving
          written notice to Dr. Curaudeau if he becomes completely disabled
          (defined below) to the extent that he cannot perform his duties under
          this Agreement either:

          I.   For a period exceeding six consecutive months, or

          II.  For a period of 180 days (not necessarily consecutive) occurring
               during any period of 365 consecutive days,

         and no other reasonable accommodation can be reached between QLT and
         Dr. Curaudeau. Notwithstanding the foregoing, QLT agrees that it will
         not terminate Dr. Curaudeau pursuant to this provision unless and until
         Dr. Curaudeau has been accepted by the insurer for ongoing long-term
         disability payments or, alternatively, has been ruled definitively
         ineligible for such payments.

     (b)  PAYMENTS - In the event of termination of Dr. Curaudeau's employment
          with the Company pursuant to the provisions of this paragraph 5.8, the
          Company agrees to pay to Dr. Curaudeau Severance Pay and Benefits
          Compensation as set out in paragraph 5.3 and in this situation:



                                     Page 6

<PAGE>

                                                                   EXHIBIT 10.80


          I.   While he is completely disabled Dr. Curaudeau shall have no duty
               to mitigate the payments owing to him by looking for and
               accepting suitable alternative employment or contract(s) for
               service, and

          II.  If Dr. Curaudeau ceases to be completely disabled, then the
               provisions of paragraphs 5.5 (duty to mitigate and notice of new
               employment) and 5.3(c) (out placement counseling) shall apply.

     (c)  DEFINITION - The term "completely disabled" as used in this paragraph
          5.8 shall mean the inability of Dr. Curaudeau to perform the essential
          functions of his position under this Agreement by reason of any
          incapacity, physical or mental, which the Board, based upon medical
          advice or an opinion provided by a licensed physician acceptable to
          the Board, determines to keep Dr. Curaudeau from satisfactorily
          performing any and all essential functions of his position for the
          Company during the foreseeable future.

5.9  DEATH - Except as set out below, effective the date of death (the "DATE OF
     DEATH") of Dr. Curaudeau, this Agreement and both parties' rights and
     obligations under this Agreement shall terminate without further notice or
     action by either party. Within 30 days after the Date of Death (and the
     automatic concurrent termination of this Agreement), the Company shall pay
     the following amounts to Dr. Curaudeau's estate:

     (a)  BASE SALARY - Base salary owing to Dr. Curaudeau up to his Date of
          Death.

     (b)  PAYMENT IN LIEU OF BENEFITS - In lieu of employee benefit coverage for
          his eligible dependents after his Date of Death, a payment in the
          amount of 10% of his annual base salary in effect at his Date of
          Death.

     (c)  EXPENSE REIMBURSEMENT - Reimbursement (in accordance with the
          Company's Policy and Procedures Manual, as amended from time to time)
          of all reasonable business related promotion, entertainment and/or
          travel expenses incurred by Dr. Curaudeau prior to his Date of Death,
          subject to the expense reimbursement provisions set out in
          subparagraph 2.1(c).

     (d)  VACATION PAY - Payment in respect of accrued but unpaid vacation pay
          owing to Dr. Curaudeau as at his Date of Death.

     (e)  RRSP CONTRIBUTION - A prorated contribution to Dr. Curaudeau's RRSP,
          the pro-ration to be with respect to the portion of the current
          calendar year worked by Dr. Curaudeau and the contribution to be
          subject to the conditions set out in subparagraph 2.1(e), except
          condition III.

     (f)  BONUS - A prorated payment to Dr. Curaudeau in respect of his
          entitlement to participate in the Company's Cash Incentive
          Compensation Plan, the pro-ration to be with respect to the portion of
          the current calendar year worked by Dr. Curaudeau and the entitlement
          to be at the maximum level Dr. Curaudeau would have otherwise been
          eligible to receive in the current calendar year.

     After his Date of Death, Dr. Curaudeau's participation and/or entitlement
     under any stock option plan offered by QLT to its employees shall be in
     accordance with the terms of the plan in effect at the time of the stock
     option offer(s) to Dr. Curaudeau.

6.       CONFLICT OF INTEREST

6.1  AVOID CONFLICT OF INTEREST - Except as set out below, during the term of
     his employment with QLT, Dr. Curaudeau agrees to conduct himself at all
     times so as to avoid any real or apparent conflict of interest with the
     activities, policies, operations and interests of QLT. To avoid improper
     appearances, Dr. 


                                     Page 7

<PAGE>

                                                                   EXHIBIT 10.80


     Curaudeau agrees that he will not accept any financial compensation of any
     kind, nor any special discount, loan or favour from persons, corporations
     or organizations having dealings or potential dealings with QLT, either as
     a customer or a supplier or a co-venturer. The Company and Dr. Curaudeau
     acknowledge and agree that from time to time the President may consent in
     writing to activities by Dr. Curaudeau which might otherwise appear to be a
     real or apparent conflict of interest.

6.2  NO FINANCIAL ADVANTAGE - During the term of his employment with QLT, Dr.
     Curaudeau agrees that neither he nor any members of his immediate family
     will take financial advantage of or benefit financially from information
     that is obtained in the course of his employment related duties and
     responsibilities unless the information is generally available to the
     public.

6.3  COMPLY WITH POLICIES - During the term of his employment with QLT, Dr.
     Curaudeau agrees to comply with all written policies issued by QLT dealing
     with conflicts of interest.

6.4  BREACH EQUALS CAUSE - Dr. Curaudeau acknowledges and agrees that breach by
     him of the provisions of this Section 6 shall be cause for immediate
     termination by the Company of his employment with the Company.

7.       CONFIDENTIALITY

7.1  INFORMATION HELD IN TRUST - Dr. Curaudeau acknowledges and agrees that all
     business and trade secrets, confidential information and knowledge which
     Dr. Curaudeau acquires during his employment with QLT relating to the
     business and affairs of QLT or to technology, systems, programs, ideas,
     products or services which have been or are being developed or utilized by
     QLT, or in which QLT is or may become interested (collectively,
     "CONFIDENTIAL INFORMATION"), shall for all purposes and at all times, both
     during the term of Dr. Curaudeau's employment with the Company and at all
     times thereafter, be held by Dr. Curaudeau in trust for the exclusive
     benefit of the Company.

7.2  NON DISCLOSURE - Dr. Curaudeau acknowledges and agrees that both during the
     term of his employment with QLT and at all times thereafter, without the
     express or implied consent of QLT, Dr. Curaudeau will not:

     (a)  DISCLOSE - Disclose to any company, firm or person, other than QLT and
          its directors and officers, any of the private affairs of QLT or any
          Confidential Information of QLT; or

     (b)  USE - Use any Confidential Information that he may acquire with
          respect to QLT's affairs for his own purposes or for any purposes,
          other than those of the Company.

7.3      INTELLECTUAL PROPERTY RIGHTS

     (a)  DISCLOSE INVENTIONS - Dr. Curaudeau agrees to promptly disclose to QLT
          any and all ideas, developments, designs, articles, inventions,
          improvements, discoveries, machines, appliances, processes, methods,
          products or the like (collectively, "INVENTIONS") that Dr. Curaudeau
          may invent, conceive, create, design, develop, prepare, author,
          produce or reduce to practice, either solely or jointly with others,
          in the course of his employment with the Company.

     (b)  INVENTIONS ARE QLT PROPERTY - All Inventions and all other work of Dr.
          Curaudeau in the course of his employment with the Company shall at
          all times and for all purposes be the property of QLT for QLT to use,
          alter, vary, adapt and exploit as it shall see fit, and shall be
          acquired or held by Dr. Curaudeau in a fiduciary capacity solely for
          the benefit of QLT.

     (c)  ADDITIONAL REQUIREMENTS - Dr. Curaudeau agrees to:



                                     Page 8

<PAGE>

                                                                   EXHIBIT 10.80


          I.   Treat all information with respect to Inventions as Confidential
               Information.
          II.  Keep complete and accurate records of Inventions, which records
               shall be the property of QLT and copies of which records shall be
               maintained at the premises of QLT.
          III. Execute all assignments and other documents required to assign
               and transfer to QLT (or such other persons as QLT may direct) all
               right, title and interest in and to the Inventions and all other
               work of Dr. Curaudeau in the course of his employment with the
               Company, and all writings, drawings, diagrams, photographs,
               pictures, plans, manuals, software and other materials, goodwill
               and ideas relating thereto, including, but not limited to, all
               rights to acquire in the name of QLT or its nominee(s) patents,
               registration of copyrights, design patents and registrations,
               trade marks and other forms of protection that may be available.
          IV.  Execute all documents and do all acts reasonably requested by QLT
               to give effect to this provision.

7.4  RECORDS - Dr. Curaudeau agrees that all records or copies of records
     concerning QLT's activities, business interests or investigations made or
     received by him during his employment with QLT are and shall remain the
     property of QLT. He further agrees to keep such records or copies in the
     custody of QLT and subject to its control, and to surrender the same at the
     termination of his employment or at any time during his employment at QLT's
     request.

7.5  NO USE OF FORMER EMPLOYER'S MATERIALS - Dr. Curaudeau certifies that he has
     not brought to QLT and will not use while performing his employment duties
     for QLT any materials or documents of any former employer which are not
     generally available to the public, except if the right to use the materials
     or documents has been duly licensed to QLT by the former employer.

8.       POST-EMPLOYMENT RESTRICTIONS

8.1  NON-COMPETE - Dr. Curaudeau agrees that, without the prior written consent
     of QLT, for a period of two years following termination of his employment
     with the Company for any reason (by resignation or otherwise), as measured
     from his Last Active Day, Dr. Curaudeau shall not:

     (a)  PARTICIPATE IN A COMPETITIVE BUSINESS - Directly or indirectly, own,
          manage, operate, join, control or participate in the ownership,
          management, operation or control of, or be a director or an employee
          of, or a consultant to, any business, firm or corporation that, as a
          part of conducting its business, is in any way competitive with QLT
          with respect to:

          I.   The development and/or commercialization and/or marketing of
               light-activated pharmaceutical products for photodynamic therapy
               in the treatment of cancer, opthalmic, auto-immune and
               cardiovascular disease, or
          II.  If the core technology base of the Company diversifies beyond
               photodynamic therapy, the development and/or commercialization
               and/or marketing of pharmaceutical products that are based on a
               significantly similar technology platform and are used in the
               treatment of substantially the same medical indications as
               products which have become a significant component of the
               Company's core business,

          anywhere in Canada, the United States or Europe.

     (b)  SOLICIT ON BEHALF OF A COMPETITIVE BUSINESS - Directly or indirectly
          call upon or solicit any QLT employee or QLT customer or known
          prospective customer of QLT on behalf of any business, firm or
          corporation that, as part of conducting its business, is in any way
          competitive with QLT with respect to:



                                     Page 9

<PAGE>

                                                                   EXHIBIT 10.80


          I.   The development and/or commercialization and/or marketing of
               light-activated pharmaceutical products for photodynamic therapy
               in the treatment of cancer, opthalmic, auto-immune and
               cardiovascular disease, or
          II.  If the core technology base of the Company diversifies beyond
               photodynamic therapy, the development and/or commercialization
               and/or marketing of pharmaceutical products that are based on a
               significantly similar technology platform and are used in the
               treatment of substantially the same medical indications as
               products which have become a significant component of the
               Company's core business,

          anywhere in Canada, the United States or Europe.

     (c)  SOLICIT EMPLOYEES - Directly or indirectly solicit any individual to
          leave QLT's employment for any reason or interfere in any other manner
          with the employment relationship existing between QLT and its current
          or prospective employees.

     (d)  SOLICIT CUSTOMERS - Directly or indirectly induce or attempt to induce
          any customer, supplier, distributor, licensee or other business
          relation of QLT to cease doing business with QLT or in any way
          interfere with the existing business relationship between any such
          customer, supplier, distributor, licensee or other business relation
          and QLT.

8.2  MINORITY SHARE INTERESTS ALLOWED - The parties agree that nothing contained
     in paragraph 8.1 is intended to prohibit Dr. Curaudeau from owning any
     minority interest in any company where stock or shares are traded publicly.

9.       REMEDIES

9.1  IRREPARABLE DAMAGE - Dr. Curaudeau acknowledges and agrees that:

     (a)  BREACH - Any breach of any provision of this Agreement could cause
          irreparable damage to QLT; and

     (b)  CONSEQUENCES OF BREACH - In the event of a breach of any provision of
          this Agreement by him, QLT shall have, in addition to any and all
          other remedies at law or in equity, the right to an injunction,
          specific performance or other equitable relief to prevent any
          violation by him of any of the provisions of this Agreement including,
          without limitation, the provisions of Sections 7 and 8.

9.2  INJUNCTION - In the event of any dispute under Sections 7 and/or 8, Dr.
     Curaudeau agrees that QLT shall be entitled, without showing actual
     damages, to a temporary or permanent injunction restraining his conduct,
     pending a determination of such dispute and that no bond or other security
     shall be required from QLT in connection therewith.

9.3  ADDITIONAL REMEDIES - Dr. Curaudeau acknowledges and agrees that the
     remedies of QLT specified in this Agreement are in addition to, and not in
     substitution for, any other rights and remedies of QLT at law or in equity
     and that all such rights and remedies are cumulative and not alternative or
     exclusive of any other rights or remedies and that QLT may have recourse to
     any one or more of its available rights and remedies as it shall see fit.

10.      GENERAL MATTERS

10.1 TAX WITHHELD - The parties acknowledge and agree that all payments to be
     made by the Company to the Employee under this Agreement will be subject to
     the Company's withholding of applicable withholding taxes.



                                    Page 10

<PAGE>

                                                                   EXHIBIT 10.80


10.2 INDEPENDENT LEGAL ADVICE - Dr. Curaudeau acknowledges that he has obtained
     or had the opportunity to obtain independent legal advice with respect to
     this Agreement and all of its terms and conditions.

10.3 BINDING AGREEMENT - The parties agree that this Agreement shall enure to
     the benefit of and be binding upon each of them and their respective heirs,
     executors, successors and assigns.

10.4 GOVERNING LAW - The parties agree that this Agreement shall be governed by
     and interpreted in accordance with the laws of the Province of British
     Columbia and the laws of Canada applicable to this Agreement. All disputes
     arising under this Agreement will be referred to the Courts of the Province
     of British Columbia, which will have exclusive jurisdiction, unless there
     is mutual agreement to the contrary.

10.5 NOTICE - The parties agree that any notice or other communication required
     to be given under this Agreement shall be in writing and shall be delivered
     personally or by facsimile transmission to the addresses set forth on page
     1 of this Agreement to the attention of the following persons:

     (a)  IF TO THE COMPANY - Attention: President, Fax No. (604) 875-0001,

          WITH A COPY TO:

          Farris, Vaughn, Wills & Murphy
          Barristers & Solicitors
          26th Floor, 700 West Georgia Street
          Vancouver, British Columbia
          V7Y 1B3
          Attention:  R. Hector MacKay-Dunn
          Fax No.:   (604) 661-1730

     (b)  IF TO THE EMPLOYEE - Fax No. ___________;

     or to such other addresses and persons as may from time to time be notified
     in writing by the parties. Any notice delivered personally shall be deemed
     to have been given and received at the time of delivery. Any notice
     delivered by facsimile transmission shall be deemed to have been given and
     received on the next business day following the date of transmission.

10.6     SURVIVAL OF TERMS

     (a)  EMPLOYEE'S OBLIGATIONS - Dr. Curaudeau acknowledges and agrees that
          his representations, warranties, covenants, agreements, obligations
          and liabilities under any and all of Sections 7, 8 and 10 of this
          Agreement shall survive any termination of this Agreement.

     (b)  COMPANY'S OBLIGATIONS - The Company acknowledges and agrees that its
          representations, warranties, covenants, agreements, obligations and
          liabilities under any and all of Sections 3, 4, 5 and 10 of this
          Agreement shall survive any termination of this Agreement.

     (c)  WITHOUT PREJUDICE - Any termination of this Agreement shall be without
          prejudice to any rights and obligations of the parties arising or
          existing up to the effective date of such expiration or termination,
          or any remedies of the parties with respect thereto.

10.7 WAIVER - The parties agree that any waiver of any breach or default under
     this Agreement shall only 


                                    Page 11

<PAGE>

                                                                   EXHIBIT 10.80


      be effective if in writing signed by the party against whom the waiver is
      sought to be enforced, and no waiver shall be implied by indulgence, delay
      or other act, omission or conduct. Any waiver shall only apply to the
      specific matter waived and only in the specific instance in which it is
      waived.

10.8  ENTIRE AGREEMENT - The parties agree that the provisions contained in this
      Agreement, Dr. Curaudeau's Change in Control Letter Agreement and any
      Stock Option Agreements between the Company and Dr. Curaudeau constitute
      the entire agreement between QLT and Dr. Curaudeau with respect to the
      subject matters hereof, and supersede all previous communications,
      understandings and agreements (whether verbal or written) between QLT and
      Dr. Curaudeau regarding the subject matters hereof. To the extent that
      there is any conflict between the provisions of this Agreement, Dr.
      Curaudeau's Change in Control Letter Agreement and any Stock Option
      Agreements between the Company and Dr. Curaudeau, the following provisions
      shall apply:

      (a)  CHANGE IN CONTROL - If the conflict is with respect to an event,
           entitlement or obligation in the case of a Change in Control of the
           Company (as defined in the Change in Control Letter Agreement), the
           provisions of the Change in Control Letter Agreement will govern
           (unless the parties otherwise mutually agree).

      (b)  STOCK OPTIONS - If the conflict is with respect to an entitlement or
           obligation with respect to stock options of the Company, the
           provisions of the Stock Option Agreements will govern (unless the
           parties otherwise mutually agree).

      (c)  OTHER - In the event of any other conflict, the provisions of this
           Agreement will govern (unless the parties otherwise mutually agree).

10.9  SEVERABILITY OF PROVISIONS - If any provision of this Agreement as applied
      to either party or to any circumstance is adjudged by a court of competent
      jurisdiction to be void or unenforceable for any reason, the invalidity of
      that provision shall in no way affect (to the maximum extent permissible
      by law):

      (a)  The application of that provision under circumstances different from
           those adjudicated by the court;

      (b)  The application of any other provision of this Agreement; or

      (c)  The enforceability or invalidity of this Agreement as a whole.

      If any provision of this Agreement becomes or is deemed invalid, illegal
      or unenforceable in any jurisdiction by reason of the scope, extent or
      duration of its coverage, then the provision shall be deemed amended to
      the extent necessary to conform to applicable law so as to be valid and
      enforceable or, if the provision cannot be so amended without materially
      altering the intention of the parties, then such provision shall be
      stricken and the remainder of this Agreement will continue in full force
      and effect.

10.10 CAPTIONS - The parties agree that the captions appearing in this Agreement
      have been inserted for reference and as a matter of convenience and in no
      way define, limit or enlarge the scope or meaning of this Agreement or any
      provision.



                                    Page 12

<PAGE>


                                                                   EXHIBIT 10.80



10.11 AMENDMENTS - Any amendment to this Agreement shall only be effective if
      the amendment is in writing and is signed by the Company and Dr.
      Curaudeau.


     IN WITNESS WHEREOF the parties have executed this Agreement as of the day
and year first written above.


QLT INC.


BY:  ____________________________                  _____________________________
     LINDA LUPINI                                  DR. ALAIN CURAUDEAU
     VICE PRESIDENT, HUMAN RESOURCES
     & ADMINISTRATION



                                    Page 13

<PAGE>

                                                                   EXHIBIT 10.80


                                   SCHEDULE A

                             ADDITIONAL COMPENSATION


1.   Additional Compensation as set out in the Company's offer of employment to
     Dr. Curaudeau, a copy of which is attached to this Schedule A.





                                    Page 14









<PAGE>




                                                                      EXHIBIT 11

                        COMPUTATION OF PER SHARE EARNINGS

     The net income (loss) per Common Share has been calculated based on the
weighted average number of Common Shares outstanding during the period. Common
Shares issuable upon conversion of first preference shares or the exercise of
options or warrants are not used in the calculation for the years ended December
31, 1999 and 1998, as the effect would be anti-dilutive.



<TABLE>
<CAPTION>

                                                                               YEAR ENDED DECEMBER 31,
                                                               --------------------------------------------------------
                                                                 2002        2001        2000        1999        1998
                                                               --------    --------    --------   ---------    --------
                                                                    (In $ Thousands Except Per Share Information)

<S>                                                          <C>         <C>         <C>        <C>          <C>      
Net income (loss)  available to common shareholders......      $ 13,595    $ 71,512    $  4,399   $ (24,560)   $(17,918)
Basic net income (loss) per common share ................      $   0.20    $   1.05    $   0.07   $   (0.40)   $  (0.34)
Fully diluted net income (loss)  per common share              $   0.20    $   1.04    $   0.06   $   (0.40)   $  (0.34)
Weighted average number of common shares outstanding
   (in thousands)........................................        68,228      67,832      66,875      61,519      53,274

</TABLE>








<PAGE>



                                                                      EXHIBIT 23

                         CONSENT OF INDEPENDENT AUDITORS

    We hereby consent to the incorporation by reference in Registration
Statements, File Nos. 333-2488 and 333-12422., of QLT Inc. on Form S-8, of our
report dated February 4, 2003, appearing in this Annual Report on Form 10-K of
QLT Inc. for the year ended December 31, 2002.




/S/ DELOITTE & TOUCHE LLP
Chartered Accountants
Vancouver, B.C.

March 28, 2003















<PAGE>


                                                                    EXHIBIT 99.1



CERTIFICATION PURSUANT TO

                             18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002


         In connection with the Annual Report of QLT Inc. (the "COMPANY") on
Form 10-K for the period ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "FORM 10-K"), I, Paul J.
Hastings, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C.ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002,
that:

    (1) The Form 10-K fully complies with the requirements of Section 13(a) or
        15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
        and

    (2) The information contained in the Form 10-K fairly presents, in all
        material respects, the financial condition and results of operations of
        the Company.


Dated: March 27, 2003


                                            /s/ Paul J. Hastings
                                            ------------------------------------
                                            Paul J. Hastings
                                            resident & Chief Executive Officer
                                            QLT Inc.




  A signed original of this written statement required by Section 906 has been
          provided to QLT and will be retained by QLT and furnished to
           the Securities and Exchange Commission staff upon request.





<PAGE>


                                                                    EXHIBIT 99.2



CERTIFICATION PURSUANT TO

                             18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002


    In connection with the Annual Report of QLT Inc. (the "COMPANY") on Form
10-K for the period ended December 31, 0 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "FORM 10-K"), I, Michael J. Doty,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.ss.1350,
as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that:

        (1) The Form 10-K fully complies with the requirements of Section 13(a)
            or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
            78o(d)); and

        (2) The information contained in the Form 10- K fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.


Dated: March 27, 2003

                                    /s/ Michael J. Doty
                                    ------------------------
                                    Michael J. Doty
                                    Senior Vice President &
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)
                                    QLT Inc.




  A signed original of this written statement required by Section 906 has been
          provided to QLT and will be retained by QLT and furnished to
           the Securities and Exchange Commission staff upon request.