================================================================================ 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. ================================================================================

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. FISCAL YEAR ENDED DECEMBER 31, --------------------------------------------------- 1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- 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 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.

QLT INC. ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2002 TABLE OF CONTENTS 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

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").

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

PRODUCTS APPROVED OR IN DEVELOPMENT (1) PRODUCT/INDICATION LOCATION(S) REGULATORY STATUS ------------------ ----------- ----------------- 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 - --------- 3

(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

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

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

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

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

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

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

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

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

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

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

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

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

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: NAME AGE POSITION ---- --- -------- 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 17

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

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

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

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

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

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

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

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

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

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

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. ITEM 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

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

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

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. THE TORONTO STOCK EXCHANGE THE NASDAQ STOCK MARKET ------------------------------------ --------------------------------------- HIGH LOW VOLUME HIGH LOW VOLUME -------- -------- ---------- ---------- --------- ---------- (CAD$) (CAD$) (U.S.$) (U.S.$) 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 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

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

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

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

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

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

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

ITEM 6. SELECTED FINANCIAL DATA ANNUAL FINANCIAL DATA YEAR ENDED DECEMBER 31, 2002 2001 2000 1999 1998 - ----------------------- --------- --------- --------- --------- --------- (In thousands except per share information) 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 QUARTERLY FINANCIAL DATA Set forth below is selected unaudited financial information for the fiscal quarters of 2002 and 2001. THREE MONTHS ENDED DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 - ----------------------- ----------- ------------ -------- --------- (In thousands except per share information) 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 38

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

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

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

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

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: For the year ended December 31, ---------------------- (In thousands) 2002 2001 - -------------- --------- --------- 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 ========= ========= 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

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

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

Details of the Company's net foreign exchange (losses) are as follows: For the year ended December 31, ------------------ (In thousands) 2002 2001 - -------------- ------- ------- 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 ======= ======= 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

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: For the year ended For nine months ended (In thousands) December 31, 2001 December 31, 2000 - -------------- ----------------- ----------------- 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 ========= ========= 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

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

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: For the year ended December 31, ------------------ (In thousands) 2001 2000 - -------------- ------- ------- 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 ======= ======= 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

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

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

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. Maturity Period Quantity Average Price (to the year) (millions) (Canadian dollars) ------------- ---------- ------------------ 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 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: Year ending December 31, $ Million ------------------------ --------- 2003 3.3 2004 0.7 2005 0.7 2006 15.5 2007 -- 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

ITEM 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

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. /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) 54

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

CONSOLIDATED BALANCE SHEETS As at December 31, 2002 2001 - ------------------ --------- --------- (In thousands) 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 ========= ========= See accompanying notes to the consolidated financial statements. 56

CONSOLIDATED STATEMENTS OF INCOME Year ended December 31, 2002 2001 2000 - ----------------------- --------- --------- --------- (All amounts except share and per share information are expressed in thousands) 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 --------- --------- --------- See accompanying notes to the consolidated financial statements. 57

CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2002 2001 2000 - ----------------------- --------- --------- --------- (In thousands) 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: -- -- -- --------- --------- --------- 58

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

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME 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) 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 CONTINUED BELOW) Total Accumulated Shareholders' Deficit Equity ---------- ---------- (All amounts except share and per share information are expressed in thousands) 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 ---------- ---------- See accompanying notes to the consolidated financial statements. 60

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

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: Methods Rates ----------------- ----- 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% 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

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

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

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

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 (In thousands) 2002 2001 - -------------- ------- ------- 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 ------- ------- 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 (In thousands) 2002 2001 - -------------- -------- -------- 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 -------- -------- 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

NOTE 4. LONG-TERM INVESTMENTS AND ADVANCES (In thousands) 2002 2001 - -------------- ------ ------ 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 ------ ------ 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 2002 2001 ---------- ---------- Accumulated Net Net (In thousands) Cost Amortization Book Value Book Value - -------------- ------- ------------ ---------- ---------- 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 ------- ------- ------- ------- NOTE 6. CREDIT FACILITY 67

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 (In thousands) 2002 2001 - -------------- ------ ------ 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 ------ ------ 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

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

Exercise Price (In Canadian dollars) Number of Shares Per Share Range --------------------- ---------------- --------------- 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 ---------------- ----------------- 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: 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 ----------- ------ ---------------- ------------ ---------------- --------------- 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 ---------- ---------- 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

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: For the year For the year For the nine months ended ended ended (In thousands) December 31, 2002 December 31, 2001 December 31, 2000 - -------------- ----------------- ----------------- ------------------- 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 ============= ================= ================== 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

(In thousands) 2002 2001 2000 - -------------- ------ ------ ------ 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 ====== ====== ====== 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 (In thousands) 2002 2001 2000 - -------------- ------- ------- ------- 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 ------- ------- ------- 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

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: (In thousands) 2002 2001 2000 - -------------- -------- -------- -------- 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) -- -------- -------- -------- 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: (In thousands) 2002 2001 2000 - -------------- -------- -------- -------- 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) -- -------- -------- -------- 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

(In thousands) 2002 2001 -------- -------- 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 -------- -------- 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

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. Maturity Period Quantity Average Price (to the year) (millions) (Canadian dollars) ------------- ---------- ------------------ 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 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: Year ending December 31, $ ------------------------ ---- 2003 3.3 2004 0.7 2005 0.7 2006 15.5 2007 - NOTE 16. SEGMENTED INFORMATION Details of the Company's revenues and property and equipment by geographic segments are as follows: Revenues(1) Year ended December 31, --------------------------------------------------- (In thousands) 2002 2001 2000 -------------- --------------- -------------- --------------- 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 --------------- -------------- --------------- Property and equipment December 31, --------------------------------- (In thousands) 2002 2001 -------------- ---------------- -------------- Canada $ 34,608 $ 35,380 United States 673 741 ---------------- -------------- $ 35,281 $ 36,121 ---------------- -------------- - --------------- (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

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

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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 77

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: (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)) - ------------- -------------------------- ------------------------ ------------------------- 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 - ----------- (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

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

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 EXHIBIT NUMBER DESCRIPTION - --------- ---------------------------------- 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) 80

EXHIBIT NUMBER DESCRIPTION - --------- ---------------------------------- 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) 81

EXHIBIT NUMBER DESCRIPTION - --------- ---------------------------------- 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 - ---------- Notes: 82

(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

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

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

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

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. SIGNATURES TITLE DATE ---------- ----- ---- /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 87

EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - --------- ---------------------------------- 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

EXHIBIT 10.76 -------------- QLT INC. AND XENOVA LIMITED ------------- DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

DEVELOPMENT AND COMMERCIALIZATION AGREEMENT TABLE OF CONTENTS 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

-ii- 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

-iii- 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 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

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).

- 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.

- 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

- 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).

- 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

- 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

- 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.

- 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

- 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

- 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.

- 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.

- 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.

- 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:

- 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 [*]:

- 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

- 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.

- 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:

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 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

- 48 - (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

- 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

- 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).

- 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

- 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

- 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

- 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

- 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.

- 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:

EXHIBIT 1.1(p) DESCRIPTION OF XR9576 [*] * Material has been omitted and filed with the Commission

- 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

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

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

- 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

EXHIBIT 1.1(www) LIST OF XENOVA PATENTS [*]. [*]. [*] * Material has been omitted and filed with the Commission

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

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:

- 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

- 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

- 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).

- 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.

- 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.

- 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,

- 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.

- 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

- 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.

- 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.

- 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:

- 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

- 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.

- 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

- 16 - SCHEDULE "A" DUTIES AND RESPONSIBILITIES To be attached.

- 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.

- 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.

- 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

EXHIBIT 10.79 Page 14

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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. YEAR ENDED DECEMBER 31, -------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- --------- -------- (In $ Thousands Except Per Share Information) 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

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

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.

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.