Financial Performance - The company reported net losses of US$16.4 million, US$42.4 million, and US$73.2 million for the years ended December 31, 2019, 2020, and 2021, respectively, with an accumulated deficit of US$178.8 million as of December 31, 2021[875]. - Net loss attributable to Adagene Inc.'s shareholders increased by 72.6% from US$42.4 million in 2020 to US$73.2 million in 2021, largely due to increased clinical and operating activities[943]. - Non-GAAP net loss for 2021 was US$54.5 million, compared to US$32.3 million in 2020, with a non-GAAP net loss per ordinary share of US$1.09[945]. - GAAP net loss attributable to ordinary shareholders increased from US$16.7 million in 2019 to US$73.2 million in 2021[950]. - Net cash used in operating activities was US$43.4 million in 2021, up from US$28.5 million in 2020[958][960]. - Cash and cash equivalents at the end of 2021 were US$174.4 million, a significant increase from US$75.2 million in 2020[957]. - Net cash generated from financing activities was US$145.4 million in 2021, primarily from the initial public offering[964]. - The company expects to incur additional operating losses and increased expenses as it expands research and development capabilities[951]. Research and Development - Research and development expenses increased from US$16.2 million in 2019 to US$68.1 million in 2021, primarily due to higher personnel costs and increased clinical activities[881]. - The clinical-stage pipeline includes three candidates: ADG116, ADG126, and ADG106, all currently in Phase 1b/2 clinical evaluation[873]. - The company has a robust preclinical pipeline with five programs in IND-enabling studies and over 50 programs in various stages of discovery[873]. - Research and development expenses rose by 103.1% from US$33.5 million in 2020 to US$68.1 million in 2021, driven by increased personnel costs and greater clinical activities[935]. - Research and development expenses include payroll, pre-clinical testing, and costs related to product candidates, with no accrued expenses for contract cancellations as of December 31, 2020, or 2021[919]. - Research and development expenses are charged as incurred, with preclinical and clinical trial costs being a significant component[979][980]. Revenue and Income - The company has not generated any revenue from product sales and does not expect to do so in the near future[879]. - The company recognizes revenue from out-licensing agreements when control of the licensed product is transferred to the customer[911]. - Licensing and collaboration revenue increased from US$0.7 million in 2020 to US$10.2 million in 2021, primarily due to US$8.5 million from a collaboration with Exelixis, Inc.[934]. - Other income increased from US$1.0 million in 2020 to US$1.8 million in 2021, due to government subsidies and R&D tax incentives[940]. Expenses - Administrative expenses increased by 40.0% from US$10.3 million in 2020 to US$14.4 million in 2021, mainly due to higher personnel and professional fees[936]. - The company incurred administrative expenses that are expected to increase as it operates as a public company and advances its product candidates[887]. - The company anticipates significant increases in expenses related to the advancement of its proprietary Dynamic Precision Library platform and ongoing clinical trials[875]. Taxation - The company is subject to a 25% enterprise income tax rate in China, with a preferential rate of 15% for qualified Technology Advanced Service Enterprises[893]. - If classified as a PRC resident enterprise, the company would face a 25% enterprise income tax on worldwide income[896]. - As of December 31, 2021, the company incurred an income tax expense of $1.7 million due to taxable profits generated by its U.S. subsidiary[924]. - Income tax expense for 2021 was US$1.7 million, compared to nil in 2020, primarily due to current tax expenses from Adagene Incorporated[942]. Corporate Governance - The executive team includes Peter Luo as CEO, Fangyong Du as CTO, and JC Xu as Chief Scientific Officer, among others[986][989]. - The Chief Financial Officer, Man Kin Tam, has over 20 years of experience in finance and banking across the Asia-Pacific region[994]. - The company’s Chief Strategy and Corporate Development Officer, Yu Ren, has tendered his resignation effective early June 2022[995]. - The board of directors consists of six members, including three independent directors, complying with Nasdaq's corporate governance rules[1041]. - The audit committee is chaired by Andy (Yiu Leung) Cheung, who is recognized as an "audit committee financial expert"[1044]. - The compensation committee, chaired by Peter Luo, is responsible for reviewing and approving compensation structures for executive officers[1046]. - The nominating and corporate governance committee, also chaired by Peter Luo, evaluates board composition and recommends nominees for election[1048]. - Directors owe fiduciary duties to the company, including a duty of loyalty and a duty to act in good faith[1049]. Employee Compensation and Benefits - The company paid an aggregate of US$3.4 million in cash to executive officers for the fiscal year ended December 31, 2021[1010]. - An aggregate of US$179 thousand in cash was paid to independent directors for the same fiscal year[1010]. - The company did not set aside or accrue expenses related to pension, retirement, or similar benefits for executive officers and directors for the fiscal year ended December 31, 2021[1010]. - The company participates in various employee social security plans, including pension and medical insurance, as required by Chinese regulations[1058]. - The company plans to continue granting share-based incentive awards to employees to incentivize their contributions[1058]. Shareholder Information - The beneficial ownership of ordinary shares as of March 31, 2022, shows Peter Luo's act-in-concert group owning 11,547,539 shares, representing 21.1%[1065]. - The total number of ordinary shares issued and outstanding as of March 31, 2022, was 54,742,598[1061]. - The total number of shares beneficially owned by all directors and executive officers as a group is 11,599,039, representing 21.2%[1065]. Miscellaneous - The COVID-19 pandemic has the potential to delay clinical trials and impact business operations, with ongoing monitoring of its effects[876]. - The company has a history of strategic partnerships and collaborations, enhancing its business development efforts[989]. - The company has not experienced any material labor disputes and maintains a good working relationship with its employees[1059].

Internal Control and Compliance - The company has identified material weaknesses in its internal control over financial reporting and is taking measures to address them, but cannot guarantee full remediation[226]. - The company is subject to the Sarbanes-Oxley Act, requiring management to report on internal controls starting with the fiscal year ending December 31, 2021[228]. - Failure to maintain effective internal controls could lead to material misstatements in financial statements and loss of investor confidence, potentially harming access to capital markets[229]. - The company expects to incur significant legal, accounting, and compliance costs as it transitions from an "emerging growth company" status, particularly due to the Sarbanes-Oxley Act requirements[384][385]. Intellectual Property Challenges - The company faces challenges in protecting its intellectual property rights globally, which could impact its competitive position and financial performance[230]. - The success of the company depends on obtaining and defending patents for its product candidates, but there is uncertainty regarding the issuance and enforceability of these patents[231]. - The company may face legal challenges that could invalidate or limit the scope of its patents, affecting its ability to prevent competitors from using similar technologies[235]. - Trade secret protection is difficult to enforce, and unauthorized disclosures could adversely affect the company's competitive position[240]. - Changes in patent laws could increase uncertainties and costs related to patent prosecution and enforcement, potentially harming the company's business[243]. - The evolving intellectual property laws in China may impact the company's ability to protect its innovations and could affect commercialization timelines[246]. - The company may face challenges in obtaining or maintaining necessary rights for its development pipeline through acquisitions and licensing deals, which could adversely affect its business and growth prospects[247]. - The growth of the business may depend on the ability to acquire and maintain licenses for proprietary rights held by third parties, with established companies posing competitive advantages due to their resources[248]. - Collaborations with academic institutions may not guarantee successful negotiations for licenses, potentially blocking the company's ability to pursue its programs[249]. - Disputes over intellectual property rights could impair the company's ability to maintain licensing arrangements, affecting the development and commercialization of product candidates[251]. - The company may incur substantial expenses and face distractions from litigation to protect its intellectual property rights, which could adversely affect its financial condition[253]. - The life sciences industry is characterized by rapid technological change and substantial litigation, with competitors potentially blocking the company's ability to use its technology[257]. - The company may be exposed to claims of patent infringement, which could lead to significant legal costs and operational disruptions[259]. - Non-compliance with patent application requirements could result in the loss of patent rights, allowing competitors to enter the market earlier[262]. - The company may face challenges in protecting trade secrets and proprietary information, which could compromise its competitive position[265]. - The company's currently issued patents are expected to expire between 2033 and 2034, which may not provide sufficient protection against competition[275]. - In the United States, patent-term restoration can provide up to five years of exclusivity, but such protections are not currently available in China, increasing the risk of generic competition[276][278]. - The company may face significant costs and challenges in enforcing its intellectual property rights in foreign jurisdictions, which could limit its ability to prevent competitors from using its technologies[279][282]. Regulatory and Taxation Issues - The PRC legal system presents uncertainties that could adversely affect the company's operations and ability to enforce contracts in China[284][285]. - Recent litigation and negative publicity surrounding China-based companies may lead to increased regulatory scrutiny and negatively impact the trading price of the company's ADSs[290]. - Changes in U.S. and international trade policies, particularly regarding China, may adversely impact the company's business and operating results[291]. - The company may be subject to a 10% PRC withholding tax on dividends and a 20% tax on gains realized from the transfer of its ADSs for foreign investors[292][294]. - The biopharmaceutical industry in China is highly regulated, and changes in regulations may affect the approval and commercialization of product candidates[296]. - Research and development operations in China provide clinical, commercial, and regulatory advantages, but increased compliance costs and potential delays in product development are anticipated due to regulatory changes[297]. - The Foreign Investment Law, effective January 1, 2020, establishes a regulatory framework for foreign investments, including a pre-entry national treatment system and a negative list for restricted industries[299][301]. - Non-compliance with PRC labor laws regarding employee benefits may result in fines and negatively impact the company's financial condition[305]. - Lease agreements for properties in China have not been registered with relevant authorities, exposing the company to potential fines ranging from RMB1,000 to RMB10,000 for each unregistered lease[308]. - Failure to comply with registration requirements for employee stock incentive plans may lead to fines and legal sanctions[310]. - If classified as a PRC resident enterprise, the company may face a 10% withholding tax on dividends paid to non-resident shareholders, potentially reducing investment returns[313]. - The company faces uncertainties regarding indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies, which may require reporting to tax authorities[314]. - The statutory enterprise income tax rate in China is 25%, but technologically advanced service enterprises can benefit from a reduced rate of 15%[320]. - Non-resident enterprises may face a withholding tax rate of 10% on the transfer of equity interests in a PRC resident enterprise[318]. - The Chinese government has introduced various tax incentives, which, if revoked or challenged, could adversely affect the company's financial condition[319]. - Compliance with SAT Bulletin 7 and SAT Bulletin 37 may require significant resources, potentially impacting the company's financial results[318]. - The M&A Rules and Anti-Monopoly Law impose additional procedures for foreign investors, potentially complicating acquisition activities[321]. - PRC regulations may limit the ability of the company's PRC subsidiaries to distribute profits or change registered capital, affecting cash flow[322]. - The company may face challenges in obtaining necessary approvals for loans or capital contributions to its PRC subsidiary, impacting liquidity[332]. - Dividends from the PRC subsidiary are subject to PRC laws, which may restrict the ability to distribute profits to shareholders[334]. - The company must comply with foreign exchange regulations, which could affect its ability to conduct cross-border transactions[326]. - Failure of PRC resident shareholders to comply with registration requirements may expose the company to fines and limit its operational capabilities[325]. - The PRC subsidiary generates revenue in Renminbi, which is not freely convertible, potentially limiting dividend payments to the parent company[335]. - The PRC government may impose stricter capital controls, affecting the ability to pay dividends and make investments[337]. - A withholding tax rate of up to 10% applies to dividends paid by Chinese companies to non-PRC-resident enterprises[337]. Currency and Exchange Rate Risks - Fluctuations in exchange rates could materially affect operational results and investment value[338]. - The Renminbi has appreciated over 20% against the U.S. dollar since 2005, but significant fluctuations have occurred since 2010[339]. - Limited hedging options are available in China, and the company has not engaged in hedging transactions to mitigate foreign currency risk[341]. - The PRC government controls currency conversion, which may limit effective cash utilization and affect investment value[342]. Market and Shareholder Considerations - The Holding Foreign Companies Accountable Act could lead to delisting if the company fails to meet PCAOB inspection requirements[350]. - The trading price of the ADSs has ranged from $12.67 to $31.83, indicating potential volatility due to various operational and market factors[357]. - The company is classified as an "emerging growth company" and may utilize reduced reporting requirements, which could limit investor access to certain information[360]. - The trading volume and price of the ADSs may be significantly affected by analysts' reports; downgrades could lead to a decline in market price[361]. - Substantial sales or perceived sales of ADSs could adversely impact their market price and the company's ability to raise capital in the future[362]. - The company has adopted anti-takeover provisions that may limit shareholders' opportunities to sell shares at a premium[363]. - There is no specific use determined for a portion of the net proceeds from the initial public offering, allowing management discretion in application[365]. - The company does not expect to pay dividends in the foreseeable future, relying instead on price appreciation for returns on investment[379]. - Holders of ADSs do not have direct voting rights and must provide instructions to the depositary to vote on their behalf[375]. - The depositary may not be able to make distributions if deemed unlawful or impractical, potentially leading to a decline in ADS value[382]. - The company has the authority to amend the deposit agreement without prior consent from ADS holders, which could affect their rights[368]. - The company may issue preferred shares that could dilute the rights of ordinary shareholders and affect the market price of ADSs[363]. Business Operations and Development - The company is a clinical-stage biopharmaceutical firm focused on developing novel antibody-based cancer immunotherapies, utilizing a platform designed to generate therapeutic antibody candidates with unique functional epitopes and species cross-reactivity[404]. - The proprietary AI-Powered DPL platform has constructed approximately one trillion (10^12) antibody sequences, enhancing epitope coverage and robust chemistry, manufacturing, and control (CMC) attributes[406]. - The company has established multiple subsidiaries, including Adagene (Suzhou) Limited in China, to conduct research and development activities, while holding certain intellectual properties[401][402]. - The company completed an initial public offering in February 2021, offering 10,571,375 ordinary shares in the form of ADSs, with trading commencing on Nasdaq under the symbol "ADAG"[402]. - The company may face challenges in protecting shareholder interests due to its incorporation under Cayman Islands law, which offers less established rights compared to U.S. jurisdictions[388][389]. - There is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could lead to adverse tax consequences for U.S. investors[396][399]. - The company’s operations are primarily conducted in China, and the assets of its directors and officers are largely located outside the U.S., complicating potential legal actions by shareholders[390]. - The company aims to push the boundaries of antibody discovery and engineering through precise design and construction of antibody product candidates, moving beyond traditional antibody technology[404]. - The AI-powered DPL platform significantly enhances R&D productivity for antibody drug discovery, yielding a large number of high-affinity primary hits with broad species cross-reactivity[408]. - ADG106, a fully human anti-CD137 mAb, is currently in Phase Ib clinical trials in the US and China, targeting a unique epitope of CD137[418]. - ADG126, a fully human anti-CTLA-4 masked antibody, has shown tolerability at doses up to 200 mg/kg in nonhuman primate models, designed to enhance safety in the tumor microenvironment[418]. - The company has observed preliminary clinical antitumor activity with ADG106 in patients who have progressed after several lines of treatment, with a correlation to changes in PD biomarkers[419]. - The clinical pipeline includes ADG106, ADG126, and ADG116, with ADG104 out-licensed for development in Greater China, retaining majority economic benefits globally[422]. - The NEObody technology allows for the generation of species cross-reactive antibodies, facilitating high fidelity translation from preclinical to clinical studies[412]. - SAFEbody technology is designed to mask antibody binding in healthy tissues, activating only in the tumor microenvironment to enhance therapeutic efficacy[413]. - The company aims to explore predictive biomarkers related to the CD137 pathway to guide the development of precision therapies[420]. - The DPL platform integrates high-throughput screening and functional antibody evaluation, streamlining the identification of preclinical candidates[412]. - The broad species cross-reactivity of the primary hits from the DPL platform is expected to save time and costs from discovery to early clinical proof of concept[408].