Form 6-K - Report of foreign issuer [Rules 13a-16 and 15d-16]

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-
16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the Month of July 2024

Commission File Number: 001-39997

Adagene Inc.

4F, Building C14, No. 218

Xinghu Street, Suzhou Industrial Park

Suzhou, Jiangsu Province, 215123

People’s Republic of China

+86-512-8777-3632

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

INCORPORATION BY REFERENCE

On July 25, 2024, Adagene Inc. (the “Company”) reported the Company’s financial results for the six-month period ended June 30, 2024. This current report on Form 6-K, including Exhibits 99.1 and 99.2 attached hereof, is hereby incorporated by reference into the registration statements on Form F-3 (File No. 333-264486) and Form S-8 (File No. 333-255250) of the Company (including any prospectuses forming a part of such registration statements), and shall be a part thereof from the date on which this current report is furnished, to the extent not superseded by documents

or reports subsequently filed or furnished.

SIGNATURES

Pursuant to the requirements 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.

	VNET Group, Inc.

	By:	/s/ Peter Luo
	Name:	Peter Luo
	Title:	Chief Executive Officer

Date: July 25, 2024

EXHIBIT INDEX


Exhibit		Description

99.1		Press release tilted “Adagene Reports Six Month Financial Results for 2024 and Provides Corporate Update”
99.2		Unaudited Interim Condensed Consolidated Financial Statements for the six months ended June 30, 2023 and 2024
101.INS		Inline XBRL Instance Document – this instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase
104		Cover Page Interactive Data File (embedded within the Inline IXBRL document)

Exhibit 99.1

Adagene Reports Six Month Financial Results for 2024 and Provides Corporate Update

- Potential best-in-class therapeutic index for lead candidate anti-CTLA-4 SAFEbody® ADG126 (muzastotug) with higher, more frequent and repeat dosing in combination with Merck’s anti-PD-1 therapy KEYTRUDA* (pembrolizumab) to unleash potential efficacy, while maintaining safety comparable to pembrolizumab alone-

- Poster planned at European Society of Medical Oncology (ESMO) Congress 2024 in September for ADG126 in combination with pembrolizumab in metastatic microsatellite-stable (MSS) colorectal cancer (CRC) reinforces potential best-in-class profile in larger patient sample –

- Differentiated safety profile of ADG126 enables an immunotherapy doublet to combine with standard of care and/or different modalities across lines of therapy and patient populations -

- Cash balance of approximately US$95.7 million funds streamlined operations into 2026 -

SAN DIEGO, Calif. and SUZHOU, China, July 25, 2024 – Adagene Inc. (“Adagene”) (Nasdaq: ADAG), a platform-driven, clinical-stage biotechnology company transforming the discovery and development of novel antibody-based therapies, today reported financial results for the six months ended June 30, 2024 and provided corporate updates.

“With the potential best-in-class product profile of ADG126 and its outstanding safety data in combination with the widely used anti-PD-1 therapy, pembrolizumab, we are well positioned to develop a new cornerstone immunotherapy doublet that can be broadly combined, addressing indications and patient populations beyond the available IO agents today,” said Peter Luo, Ph.D., Chairman, CEO and President of R&D at Adagene. “Our deep commitment to develop a safe and effective anti-CTLA-4 therapy is coming to fruition. We are confident that higher, more frequent and repeat dosing of anti-CTLA-4 in combination will translate into improved patient outcomes, including clinical response and survival.”

ADG126 HIGHLIGHTS

ADG126 is a masked anti-CTLA-4 SAFEbody targeting a unique epitope of CTLA-4 on regulatory T cells (Tregs) in tumor tissue which shows a potential best-in-class profile in combination with pembrolizumab.

ESMO Poster Presentation in September

Longer-term data from a phase 1b/2 trial in MSS CRC will be presented at the ESMO Congress 2024 taking place in Barcelona, September 13–17, including additional patients from expansion cohorts of ADG126 10 mg/kg in combination with pembrolizumab. The update will include:

Additional follow up in evaluable patients at doses of ADG126 10 mg/kg Q3W (n=12; Part 1) and 10 mg/kg Q6W (n=10) without liver metastases, including durability of partial responses and stable disease, as well as progression-free survival (PFS) and initial overall survival (OS) data

Data on 12 more patients at ADG126 10 mg/kg Q3W (Part 2) without liver metastases

Highlights of Prior Data Reported at ASCO GI 2024

Data from Part 1 of an ongoing phase 1b/2 single arm trial evaluating ADG126 in combination with pembrolizumab showed a differentiated safety profile for ADG126 at doses from 6 mg/kg to 10 mg/kg administered every 3 or 6 weeks in heavily pre-treated advanced/metastatic patients with solid tumors (N=46):

Grade 3 TRAEs occurred in 5/46 patients (10.8%), with no Grade 3 colitis, no Grade 4 or 5 TRAEs, and a discontinuation rate of 6.5% (3/46)

Grade 3 TRAEs occurred in 13% of patients treated with ADG126 10 mg/kg Q3W in combination with pembrolizumab

The safety profile of ADG126 in combination with pembrolizumab was comparable to that of pembrolizumab monotherapy

This has been achieved with limited safety management for immune-mediated diarrhea/colitis, such as infliximab infusion in no more than 10% of patients

A strong efficacy signal was observed in dose expansion in MSS CRC with an overall response rate of 22% [2 confirmed Partial Response (PRs)] in patients treated with ADG126 10 mg/kg Q3W in combination with pembrolizumab (200 mg/Q3W) without peritoneal and liver metastases (n=9):

Seven patients in this subset experienced stable disease (SD) for an overall disease control rate of 100% (2 PRs and 7 SD)

One confirmed PR was observed in a patient with lung and lymph node metastases who initially presented without detectable liver lesions. The patient, who had previously failed two lines of therapy, later experienced shrinkage of sizable new liver lesions while on treatment

In a preliminary progression-free survival (PFS) analysis of those MSS CRC patients free of liver and peritoneal metastasis, a median progression-free survival (PFS) of seven months was observed in those treated with ADG126 10 mg/kg at two dosing frequencies pooled together [every three weeks (n=9) and every six weeks (n=6)].

Additional MSS CRC Patient Cohorts Enrolled

●

Adagene has enrolled five additional patients prospectively without peritoneal and liver metastases treated with ADG126 10 mg/kg Q3W in combination with pembrolizumab (Part 3) to further expand the patient sample with this dosing regimen.

●

Adagene is also evaluating patients treated with a 20 mg/kg loading dose followed by ADG126 10 mg/kg Q3W in combination with pembrolizumab at sites in the US and Asia Pacific. Ten patients have been enrolled in a dose expansion cohort for this dosing regimen with initial results planned for later this year.

Greater China Expansion

Adagene recently initiated evaluation of ADG126 in combination with pembrolizumab in Greater China. Following a safety evaluation, this study enables the company to broaden its dose expansion cohorts for MSS CRC at selected dosing regimens, and potentially in other tumor types.

Additionally, a small cohort of patients (~5) with advanced/metastatic cancers is ongoing to evaluate 30 mg/kg ADG126 monotherapy Q3W in Greater China and define the potential maximum tolerated dose of ADG126 monotherapy.

Clinical Activity Suggested in PD-1 Experienced and PD-L1 Low Patients

In a dose escalation cohort across three dosing regimens (n=11) presented at ASCO-GI 2024, two confirmed PRs were observed among the three patients treated with ADG126 10 mg/kg Q3W in combination with pembrolizumab. One of the patients had PD-1 refractory cervical cancer and the other had endometrial cancer. The cervical cancer patient had progressed after two lines of prior therapy, including nine cycles of pembrolizumab monotherapy, meeting criteria for PD-1 resistance. Both confirmed PRs are sustained after more than 18 months with repeat dosing while maintaining robust safety profiles.

Data at ASCO-GI 2024 also showed a confirmed PR in a patient with head and neck squamous cell carcinoma who was treated with ADG126 10 mg/kg Q6W in combination with pembrolizumab (n=17). The patient was IO-naïve with a low CPS score and experienced a complete reduction in target lesions.

Clinical Activity Suggested in MSS CRC Patients with Liver Metastases

In a cohort evaluating ADG126 plus the approved anti-PD-1 therapy, toripalimab (240 mg Q3W), two cases of significant tumor shrinkage were observed in MSS CRC patients with liver metastasis. Both patients were heavily pre-treated with three lines of prior therapy:

One patient with lung, lymph node and liver metastases experienced more than a 30% reduction in target lesions (ADG126 10 mg/kg Q3W). Due to the presence of new lesions, the mixed response was not considered an objective response following RECIST criteria.

The second patient (ADG126 6 mg/kg Q3W) experienced a 21% reduction in two target lesions on the liver (55 and 48 mm, respectively).

Further, in a dose escalation cohort (n=6) evaluating the unmasked/parental antibody to ADG126, ADG116 (3 mg/kg Q3W), in combination with pembrolizumab, a patient with liver metastases who failed five previous lines of therapy experienced significant reduction in carcinoembryonic antigen (CEA) levels. The data were presented in a poster at SITC 2022.

ADDITIONAL SAFEBODY PIPELINE

Phase 1 evaluation is ongoing for ADG206, a masked, IgG1 F_C-enhanced anti-CD137 POWERbody™ in patients with advanced/metastatic tumors:

Adagene has now enrolled 13 patients in an ongoing phase 1 trial of ADG206 to evaluate safety, efficacy and tolerability profiles for this next generation anti-CD137 candidate. Dose escalation continues with a cohort ongoing at 6 mg/kg Q3W. No maximum tolerated dose (MTD) has yet been reached.

Preclinical data demonstrated that ADG206 was well tolerated and had robust anti-tumor activity as a single agent in multiple tumor models, with 4-fold stronger anti-CD137 agonistic activity of its activated form than a benchmark antibody (urelumab analog) that displayed dose-dependent liver toxicity with an MTD of 0.1 mg/kg Q3W.

ADG206 is the company’s first SAFEbody with Fc enhancement, called a POWERbody, to advance into clinic. ADG206 combines SAFEbody precision masking, Fc enhancement and targeting of a unique epitope to solve the safety and efficacy challenges of anti-CD137 therapies, reflecting versatility of Adagene’s dynamic antibody discovery and masking platform.

Preclinical candidates in IND-enabling studies demonstrate the versatility and potential best-in-class safety profiles of candidates developed using SAFEbody precision masking technology in IgG format. Candidates include two masked CD3 T Cell Engagers (TCEs) in IND-enabling phase with a prolonged half-life and robust preclinical safety profiles, demonstrating well-controlled cytokine release syndrome (CRS) in non-human primate studies, as well as others applying the SAFEbody platform:

ADG138 is a double masked CD3xHER2 with a high therapeutic index relative to its parental non-masked TCE in both HER2 high and low expressing solid tumors, supporting its development for HER2-expressing solid tumors as a single agent and in combination with other immune modulating agents.

ADG152 is a masked bispecific CD3xCD20 that integrates SAFEbody precision masking technology to minimize CRS and on-target/off-tumor toxicities for an increased therapeutic index. The anti-CD20 arm of ADG152 has enhanced binding to CD20, while its anti-CD3 arm has tailor-made affinity for CD3 using SAFEbody technology. Preclinical data show ADG152 induced strong and sustained B-cell depletion across different dose levels.

ADG153 is a masked anti-CD47 in IgG1 format that is differentiated by its strong antibody-dependent cellular cytotoxicity (ADCC) and antibody-dependent cellular phagocytosis (ADCP) activity. ADG153 is designed with SAFEbody masking technology with active Fc to realize the full potential of anti-CD47 therapy for both hematologic and solid tumor indications.

CD28 bispecific TCEs exhibit enormous potential to fulfill the promises of safe and durable T cell-mediated synergistic immunotherapies when combined with CD3 bispecific TCEs and/or checkpoint inhibitors. Preclinical data demonstrated the potential to mitigate the serious safety concerns of CD28 activation and make custom designed antibodies targeting a highly conserved epitope with broad species reactivity.

COLLABORATIONS

Exelixis: Adagene and Exelixis are collaborating under a collaboration and licensing agreement to develop novel masked antibody-drug conjugate candidates using Adagene’s SAFEbody precision masking technology. Terms of the agreement, which was executed in February 2021, include an upfront payment from Exelixis of US$11 million to Adagene, allowing Exelixis the ability to nominate two targets during the collaboration term. Adagene will be eligible for development and commercialization milestones, as well as royalties on net sales of products developed around each of these targets. To date, Adagene has received US$6 million for successful nomination of lead SAFEbody candidates in the collaboration.

Sanofi: Under a collaboration announced in March 2022, Adagene will develop masked versions of Sanofi bispecific and monoclonal antibody candidates, using Adagene’s SAFEbody technology, for potential future development and commercialization by Sanofi.

Roche: Roche is sponsoring and conducting a phase 1b/2 multi-national trial to evaluate ADG126 in a triple combination with atezolizumab and bevacizumab in first-line hepatocellular carcinoma (HCC). To date the combination has been well tolerated. Adagene retains global development and commercialization rights to ADG126.

2024 MILESTONES & CASH RUNWAY INTO 2026

Adagene expects its current cash balance to fund activities into 2026, with multiple readouts anticipated from the ongoing program evaluating ADG126 in combination with pembrolizumab in MSS CRC at major medical conference(s).

FINANCIAL HIGHLIGHTS

Cash and Cash Equivalents

Cash and cash equivalents were US$95.7 million as of June 30, 2024, compared to US$109.9 million as of December 31, 2023. Total borrowings from commercial banks in China (denominated in RMB) decreased to US$20.5 million as of June 30, 2024 from US$21.9 million as of December 31, 2023. The associated loan proceeds were primarily used to support the company’s R&D activities in China.

Net Revenue:

Net revenue was nil for the six months ended June 30, 2024, compared to US$17.3 million for the same period in 2023. The company did not enter into any new contracts with customers and did not complete any performance obligations in relation to existing contracts with customers during the six months ended June 30, 2024.

Research and Development (R&D) Expenses:

R&D expenses were US$14.7 million for the six months ended June 30, 2024, compared to US$21.3 million for the same period in 2023. The 31% decrease in R&D expenses reflects clinical focus on and prioritization of the company’s masked, anti-CTLA-4 SAFEbody ADG126.

Administrative Expenses:

Administrative expenses were US$3.6 million for the six months ended June 30, 2024, compared to US$4.5 million for the same period in 2023. The decrease was driven by reduction in personnel and cost-control measures.

Other Operating Income, Net:

Other operating income, net was nil for the six months ended June 30, 2024, compared to US$3.4 million for the same period in 2023. The amount of US$3.4 million included a one-time compensation payment from a contract manufacturer for a preclinical-related outsourcing arrangement.

Net Loss:

Net loss attributable to Adagene Inc.’s shareholders was US$17.0 million for the six months ended June 30, 2024, compared to US$4.1 million for the same period in 2023.

Ordinary Shares Outstanding:

As of June 30, 2024, there were 55,338,480 ordinary shares issued and outstanding. Each American depository share, or ADS, represents one and one quarter (1.25) ordinary shares of the company.

Non-GAAP Net Loss:

Non-GAAP net loss, which is defined as net loss attributable to ordinary shareholders after excluding share-based compensation expenses, was US$14.5 million for the six months ended June 30, 2024, compared to US$0.1 million for the same period in 2023. Please refer to the section in this press release titled “Reconciliation of GAAP and Non-GAAP Results” for details.

Non-GAAP Financial Measures

The company uses non-GAAP net loss and non-GAAP net loss per ordinary share for the period, which are non-GAAP financial measures, in evaluating its operating results and for financial and operational decision-making purposes. The company believes that non-GAAP net loss and non-GAAP net loss per ordinary share for the period help identify underlying trends in the company’s business that could otherwise be distorted by the effect of certain expenses that the company includes in its loss for the period. The company believes that non-GAAP net loss and non-GAAP net loss per ordinary share for the period provide useful information about its results of operations, enhances the overall understanding of its past performance and future prospects and allows for greater visibility with respect to key metrics used by its management in its financial and operational decision-making.

Non-GAAP net loss and non-GAAP net loss per ordinary share for the period should not be considered in isolation or construed as an alternative to operating profit, loss for the period or any other measure of performance or as an indicator of its operating performance. Investors are encouraged to review non-GAAP net loss and non-GAAP net loss per ordinary share for the period and the reconciliation to their most directly comparable GAAP measures. Non-GAAP net loss and non-GAAP net loss per ordinary share for the period here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the company’s data. The company encourages investors and others to review its financial information in its entirety and not rely on a single financial measure.

Non-GAAP net loss and non-GAAP net loss per ordinary share for the period represent net loss attributable to ordinary shareholders for the period excluding share-based compensation expenses. Share-based compensation expense is a non-cash expense arising from the grant of stock-based awards to employees. The company believes that the exclusion of share-based compensation expenses from the net loss in the “Reconciliation of GAAP and Non-GAAP Results” assists management and investors in making meaningful period-to-period comparisons in the company's operating performance or peer group comparisons because (i) the amount of share-based compensation expenses in any specific period may not directly correlate to the company’s underlying performance, (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, and (iii) other companies may use different forms of employee compensation or different valuation methodologies for their share-based compensation.

Please see the “Reconciliation of GAAP and Non-GAAP Results” included in this press release for a full reconciliation of non-GAAP net loss and non-GAAP net loss per ordinary share for the period to net loss attributable to ordinary shareholders for the period.

About Adagene

Adagene Inc. (Nasdaq: ADAG) is a platform-driven, clinical-stage biotechnology company committed to transforming the discovery and development of novel antibody-based cancer immunotherapies. Adagene combines computational biology and artificial intelligence to design novel antibodies that address globally unmet patient needs. The company has forged strategic collaborations with reputable global partners that leverage its SAFEbody^® precision masking technology in multiple approaches at the vanguard of science.

Powered by its proprietary Dynamic Precision Library (DPL) platform, composed of NEObody™, SAFEbody, and POWERbody™ technologies, Adagene’s highly differentiated pipeline features novel immunotherapy programs. The company’s SAFEbody technology is designed to address safety and tolerability challenges associated with many antibody therapeutics by using precision masking technology to shield the binding domain of the biologic therapy. Through activation in the tumor microenvironment, this allows for tumor-specific targeting of antibodies in tumor microenvironment, while minimizing on-target off-tumor toxicity in healthy tissues.

Adagene’s lead clinical program, ADG126 (muzastotug), is a masked, anti-CTLA-4 SAFEbody that targets a unique epitope of CTLA-4 in regulatory T cells (TREGs) in the tumor microenvironment. ADG126 is currently in phase 1b/2 clinical studies in combination with anti-PD-1 therapy, particularly focused on Metastatic Microsatellite-stable (MSS) Colorectal Cancer (CRC). Validated by ongoing clinical research, the SAFEbody platform can be applied to a wide variety of antibody-based therapeutic modalities, including Fc empowered antibodies, antibody-drug conjugates, and bi/multispecific T-cell engagers.

For more information, please visit: https://investor.adagene.com. Follow Adagene on WeChat, LinkedIn and Twitter.

SAFEbody^® is a registered trademark in the United States, China, Australia, Japan, Singapore, and the European Union.

KEYTRUDA^® is a registered trademark of Merck Sharp & Dohme LLC, a subsidiary of Merk & Co., Inc., Rahway, NJ, USA.

Safe Harbor Statement

This press release contains forward-looking statements, including statements regarding the potential implications of clinical data for patients, and Adagene’s advancement of, and anticipated preclinical activities, clinical development, regulatory milestones, and commercialization of its product candidates. Actual results may differ materially from those indicated in the forward-looking statements as a result of various important factors, including but not limited to Adagene’s ability to demonstrate the safety and efficacy of its drug candidates; the clinical results for its drug candidates, which may not support further development or regulatory approval; the content and timing of decisions made by the relevant regulatory authorities regarding regulatory approval of Adagene’s drug candidates; Adagene’s ability to achieve commercial success for its drug candidates, if approved; Adagene’s ability to obtain and maintain protection of intellectual property for its technology and drugs; Adagene’s reliance on third parties to conduct drug development, manufacturing and other services; Adagene’s limited operating history and Adagene’s ability to obtain additional funding for operations and to complete the development and commercialization of its drug candidates; Adagene’s ability to enter into additional collaboration agreements beyond its existing strategic partnerships or collaborations, and the impact of the outbreak of a widespread health epidemic on Adagene’s clinical development, commercial and other operations, as well as those risks more fully discussed in the “Risk Factors” section in Adagene’s annual report for the year of 2023 on Form 20-F filed with the U.S. Securities and Exchange Commission. All forward-looking statements are based on information currently available to Adagene, and Adagene undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

Investor & Media Contact:

Ami Knoefler

650-739-9952

ir@adagene.com

FINANCIAL TABLES FOLLOW

Unaudited Consolidated Balance Sheets


	December 31,	June 30,
	2023	2024
	US$	US$
ASSETS
Current assets:
Cash and cash equivalents	109,934,257	95,673,787
Amounts due from related parties	222,027	31,419
Prepayments and other current assets	3,287,445	3,099,362
Total current assets	113,443,729	98,804,568
Property, equipment and software, net	1,835,121	1,439,102
Operating lease right-of-use assets	365,103	254,048
Other non‑current assets	84,885	281,881
TOTAL ASSETS	115,728,838	100,779,599
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	3,093,752	3,370,641
Amounts due to related parties	16,714,326	17,333,926
Accruals and other current liabilities	3,001,508	2,658,532
Income tax payable	52,884	38,382
Short‑term borrowings	4,235,673	4,209,463
Current portion of long-term borrowings	4,161,549	11,765,449
Current portion of operating lease liabilities	195,955	141,281
Total current liabilities	31,455,647	39,517,674
Long‑term borrowings	13,540,034	4,560,251
Operating lease liabilities	173,660	114,086
TOTAL LIABILITIES	45,169,341	44,192,011
Commitments and contingencies
Shareholders’ equity:
Ordinary shares (par value of US$0.0001 per share; 640,000,000 shares authorized, and 55,145,839 shares issued and outstanding as of December 31, 2023; and 640,000,000 shares authorized, and 55,338,480 shares issued and outstanding as of June 30, 2024)	5,547	5,554
Treasury shares, at cost (1 share as of December 31, 2023 and June 30, 2024)	(4)	(4)
Additional paid‑in capital	350,105,518	352,645,033
Accumulated other comprehensive loss	(1,800,088)	(1,299,803)
Accumulated deficit	(277,751,476)	(294,763,192)
Total shareholders’ equity	70,559,497	56,587,588
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	115,728,838	100,779,599

Unaudited Consolidated Statements of Comprehensive Loss


	For the Six Months	For the Six Months
	Ended June 30, 2023	Ended June 30, 2024
	US$	US$
Revenues
Licensing and collaboration revenue	17,295,745	—
Operating expenses and income
Research and development expenses	(21,289,434)	(14,724,553)
Administrative expenses	(4,470,520)	(3,597,278)
Other operating income, net	3,415,230	—
Loss from operations	(5,048,979)	(18,321,831)
Interest and investment income	1,918,971	1,976,559
Interest expense	(573,507)	(428,328)
Other income, net	287,430	47,040
Foreign exchange gain (loss), net	1,620,415	(283,768)
Loss before income tax	(1,795,670)	(17,010,328)
Income tax expense	(2,313,136)	(1,388)
Net loss attributable to Adagene Inc.’s shareholders	(4,108,806)	(17,011,716)
Other comprehensive income (loss)
Foreign currency translation adjustments, net of nil tax	(407,330)	500,285
Total comprehensive loss attributable to Adagene Inc.’s shareholders	(4,516,136)	(16,511,431)
Net loss attributable to Adagene Inc.’s shareholders	(4,108,806)	(17,011,716)
Net loss attributable to ordinary shareholders	(4,108,806)	(17,011,716)
Weighted average number of ordinary shares used in per share calculation:
—Basic	54,604,787	55,213,051
—Diluted	54,604,787	55,213,051
Net loss per ordinary share
—Basic	(0.08)	(0.31)
—Diluted	(0.08)	(0.31)

Reconciliation of GAAP and Non-GAAP Results


	For the Six Months	For the Six Months
	Ended June 30, 2023	Ended June 30, 2024
	US$	US$
GAAP net loss attributable to ordinary shareholders	(4,108,806)	(17,011,716)
Add back:
Share-based compensation expenses	4,030,214	2,477,108
Non-GAAP net loss	(78,592)	(14,534,608)
Weighted average number of ordinary shares used in per share calculation:
—Basic	54,604,787	55,213,051
—Diluted	54,604,787	55,213,051
Non-GAAP net loss per ordinary share
—Basic	—	(0.26)
—Diluted	—	(0.26)

Table of Contents

Exhibit 99.2

ADAGENE INC.

INDEX TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Interim Condensed Consolidated Financial Statements		PAGES
Unaudited Interim Condensed Consolidated Balance Sheets as of December 31, 2023 and June 30, 2024		F-2
Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss for the Six Months Ended June 30, 2023 and 2024		F-3
Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2023 and 2024		F-4
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2024		F-5
Notes to the Unaudited Interim Condensed Consolidated Financial Statements		F-6

F-1

Table of Contents

ADAGENE INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2023 AND JUNE 30, 2024


		As of December 31,	As of June 30,
	Notes	2023	2024
		US$	US$
ASSETS
Current assets:
Cash and cash equivalents		109,934,257	95,673,787
Amounts due from related parties	11	222,027	31,419
Prepayments and other current assets	3	3,287,445	3,099,362
Total current assets		113,443,729	98,804,568
Property, equipment and software, net	4	1,835,121	1,439,102
Operating lease right-of-use assets	12	365,103	254,048
Other non-current assets		84,885	281,881
TOTAL ASSETS		115,728,838	100,779,599
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		3,093,752	3,370,641
Amounts due to related parties	11	16,714,326	17,333,926
Accruals and other current liabilities	5	3,001,508	2,658,532
Income tax payable	9	52,884	38,382
Short-term borrowings	6	4,235,673	4,209,463
Current portion of long-term borrowings	6	4,161,549	11,765,449
Current portion of operating lease liabilities	12	195,955	141,281
Total current liabilities		31,455,647	39,517,674
Long-term borrowings	6	13,540,034	4,560,251
Operating lease liabilities	12	173,660	114,086
TOTAL LIABILITIES		45,169,341	44,192,011
Commitments and contingencies	13
Shareholders’ equity:
Ordinary shares (par value of US$0.0001 per share; 640,000,000 shares authorized, and 55,145,839 shares issued and outstanding as of December 31, 2023; and 640,000,000 shares authorized, and 55,338,480 shares issued and outstanding as of June 30, 2024)		5,547	5,554
Treasury shares, at cost (1 share as of December 31, 2023 and June 30, 2024)	14	(4)	(4)
Additional paid-in capital		350,105,518	352,645,033
Accumulated other comprehensive loss		(1,800,088)	(1,299,803)
Accumulated deficit		(277,751,476)	(294,763,192)
Total shareholders’ equity		70,559,497	56,587,588
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		115,728,838	100,779,599

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

F-2

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ADAGENE INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2024


		For the six months ended
		June 30,
	Notes	2023	2024
		US$	US$
Revenue
Licensing and collaboration revenue	8	17,295,745	—
Operating expenses and income
Research and development expenses		(21,289,434)	(14,724,553)
Third parties		(19,501,323)	(13,757,888)
Related parties		(1,788,111)	(966,665)
Administrative expenses		(4,470,520)	(3,597,278)
Other operating income, net		3,415,230	—
Loss from operations		(5,048,979)	(18,321,831)
Interest and investment income		1,918,971	1,976,559
Interest expense		(573,507)	(428,328)
Other income, net		287,430	47,040
Foreign exchange gain (loss), net		1,620,415	(283,768)
Loss before income tax		(1,795,670)	(17,010,328)
Income tax expense	9	(2,313,136)	(1,388)
Net loss attributable to Adagene Inc.’s shareholders		(4,108,806)	(17,011,716)
Other comprehensive income (loss)
Foreign currency translation adjustments, net of nil tax		(407,330)	500,285
Total comprehensive loss attributable to Adagene Inc.’s shareholders		(4,516,136)	(16,511,431)
Net loss attributable to Adagene Inc.’s shareholders		(4,108,806)	(17,011,716)
Net loss attributable to ordinary shareholders		(4,108,806)	(17,011,716)
Weighted average number of ordinary shares used in per share calculation:
—Basic	10	54,604,787	55,213,051
—Diluted	10	54,604,787	55,213,051
Net loss per ordinary share
—Basic	10	(0.08)	(0.31)
—Diluted	10	(0.08)	(0.31)

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

F-3

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ADAGENE INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2024


						Accumulated
	Ordinary shares		Treasury shares		Additional	other		Total
	Number of		Number of		paid‑in	comprehensive	Accumulated	shareholders’
	shares	Amount	shares	Amount	capital	loss	deficit	equity
		US$		US$	US$	US$	US$	US$
Balance as of December 31, 2022	54,965,710	5,497	(1)	(4)	342,739,268	(849,305)	(258,805,106)	83,090,350
Net loss	—	—	—	—	—	—	(4,108,806)	(4,108,806)
Other comprehensive income (loss)	—	—	—	—	—	(407,330)	—	(407,330)
Exercise of share options (Note 7)	10,000	1	—	—	5,499	—	—	5,500
Issuance of ordinary shares under performance incentive plan (Note 7)	156,725	16	—	—	183,584	—	—	183,600
Share-based compensation	425,905	42	—	—	4,030,172	—	—	4,030,214
Balance as of June 30, 2023	55,558,340	5,556	(1)	(4)	346,958,523	(1,256,635)	(262,913,912)	82,793,528


	Ordinary shares		Treasury shares
						Accumulated
					Additional	other		Total
	Number of		Number of		paid‑in	comprehensive	Accumulated	shareholders’
	shares	Amount	shares	Amount	capital	loss	deficit	equity
		US$		US$	US$	US$	US$	US$
Balance as of December 31, 2023	55,470,840	5,547	(1)	(4)	350,105,518	(1,800,088)	(277,751,476)	70,559,497
Net loss	—	—	—	—	—	—	(17,011,716)	(17,011,716)
Other comprehensive income (loss)	—	—	—	—	—	500,285	—	500,285
Exercise of share options (Note 7)	72,641	7	—	—	62,407	—	—	62,414
Share‑based compensation	—	—	—	—	2,477,108	—	—	2,477,108
Balance as of June 30, 2024	55,543,481	5,554	(1)	(4)	352,645,033	(1,299,803)	(294,763,192)	56,587,588

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

F-4

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ADAGENE INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2024


	For the six months ended
	June 30,
	2023	2024
	US$	US$
Cash flows from operating activities:
Net loss	(4,108,806)	(17,011,716)
Adjustments to reconcile net loss to net cash used in operating activities:
Income related to short-term investments	—	(459,789)
Depreciation and amortization	518,199	399,798
Net loss on disposal of property, equipment, software and operating lease right-of-use asset	3,868	—
Share-based compensation	4,030,214	2,477,108
Amortization of right-of use assets and interest of lease liabilities	113,695	116,140
Foreign exchange loss (gain), net	(1,620,415)	283,768
Changes in operating assets and liabilities:
Prepayments and other current assets	1,412,635	207,683
Amount due from related parties	225,463	190,608
Other non-current assets	650	3,004
Accounts payable	817,652	276,889
Contract liabilities	(14,294,360)	—
Amount due to related parties	(2,107,305)	619,600
Accruals and other current liabilities	(194,644)	(342,976)
Lease liabilities	(119,184)	(119,332)
Income tax payable	1,895,063	(14,502)
Net cash used in operating activities	(13,427,275)	(13,373,717)
Cash flows from investing activities:
Placement of short-term investments	(20,000,000)	(53,500,000)
Withdrawal of short-term investments	20,000,000	53,959,789
Proceeds from disposal of property, equipment and software	159	—
Purchase of property, equipment and software	(30,965)	(12,547)
Net cash generated from (used in) investing activities	(30,806)	447,242
Cash flows from financing activities:
Proceeds from borrowings	3,951,237	2,806,230
Proceeds from exercise of share options	5,500	42,814
Payment of direct costs related to at-the-market offering	—	(200,000)
Repayment of borrowings	(5,797,491)	(4,085,110)
Net cash used in financing activities	(1,840,754)	(1,436,066)
Effect of exchange rate on cash and cash equivalents	300,119	102,071
Net decrease in cash and cash equivalents	(14,998,716)	(14,260,470)
Cash and cash equivalents at the beginning of the period	143,758,678	109,934,257
Cash and cash equivalents at the end of the period	128,759,962	95,673,787
Supplemental cash flow disclosures:
Interest paid	550,403	395,399
Income tax paid	145,500	15,890
Cash paid for fixed operating lease costs included in the measurement of lease obligations in operating activities	119,184	119,332
Right-of-use assets obtained in exchange for operating lease obligations	113,901	—

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

F-5

Table of Contents

ADAGENE INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2024

1. ORGANIZATION AND BASIS OF PRESENTATION

Adagene Inc. (the “Company”) is a limited liability company incorporated in the Cayman Islands on February 25, 2011. The Company, together with its subsidiaries (collectively, the “Group”), are principally engaged in research, development and production of monoclonal antibody drugs for cancers.

The shares of the Company’s American Depositary Shares (“ADSs”) are traded on the NASDAQ Global Market, and each ADS represents one and one quarter (1.25) ordinary shares of the Company.

As of June 30, 2024, the Company’s principal subsidiaries were as follows:


			Percentage of legal
	Date of	Place of	ownership
Entity	incorporation	incorporation	by the Company		Principal activities
Adagene (Hong Kong) Limited	December 12, 2011	Hong Kong	100	%	Investment holding, and research and development of innovative medicines
Adagene Incorporated	September 20, 2017	The United States of America	100	%	Research and development of innovative medicines
Adagene (Suzhou) Limited	February 28, 2012	The People’s Republic of China (“PRC” or “China”)	100	%	Research and development of innovative medicines
Adagene Australia PTY Ltd.	May 30, 2018	Australia	100	%	Research and development of innovative medicines
Adagene PTE. Ltd.	March 27, 2020	Singapore	100	%	Research and development of innovative medicines
Adagene AG	August 31, 2020	Switzerland	100	%	Research and development of innovative medicines
Adagene Project C1 PTE. Ltd.	March 25, 2022	Singapore	100	%	Research and development of innovative medicines

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The interim unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair statement of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The comparative year-end condensed balance sheet data was derived from the annual audited consolidated financial statements but is condensed to the same degree as the interim condensed balance sheet data.

The interim unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users have read or have access to the annual audited consolidated financial statements filed on March 29, 2024.

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Principal accounting policies followed by the Company in the preparation of the accompanying condensed consolidated financial statements are summarized below. References to specific U.S. GAAP principles throughout these notes to the accompanying financial statements are to the Accounting Standards Codification (“ASC”), as published by the U.S. Financial Accounting Standards Board (“FASB”).

Principles of Consolidation

The condensed consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in the Group’s condensed consolidated financial statements include, but are not limited to, licensing and collaboration revenue recognition, research and development expense allocation, the useful lives and impairment of long-lived assets, tax valuation allowance, share-based compensation expenses, and measurement of right-of-use assets and lease liabilities. Management bases the estimates on historical experience and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could materially differ from those estimates.

Foreign currency translation

The functional currency of the Company, Adagene (Hong Kong) Limited, Adagene Incorporated, Adagene PTE. Ltd. and Adagene Project C1 PTE. Ltd. is the United States dollar (“US$”). The functional currency of the Company’s PRC subsidiary is Renminbi (“RMB”). The functional currency of the Company’s Australian subsidiary is Australian dollar (“AU$”). The functional currency of the Company’s Swiss subsidiary is Swiss Franc (“CHF”). The determination of the respective functional currency is based on the criteria stated in ASC 830, Foreign Currency Matters. The Company uses US$ as its reporting currency. The financial statements of the Company’s PRC, Australian and Swiss subsidiaries are translated from the functional currency to the reporting currency.

Transactions denominated in foreign currencies are remeasured into the functional currency at the exchange rates quoted by the People’s Bank of China (the “PBOC”) prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are re-measured at the exchange rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical costs in foreign currency are re-measured using the exchange rates at the dates of the initial transactions. Exchange gains and losses are included in the condensed consolidated statements of comprehensive loss.

Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the reporting period. Translation adjustments are reported as accumulated comprehensive loss and are shown as a separate component of other comprehensive loss in the condensed consolidated statements of comprehensive loss.

Cash and cash equivalents

Cash and cash equivalents primarily consist of cash and demand deposits which are highly liquid. The Group considers highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of purchase of three months or less to be cash equivalents. All cash and cash equivalents are unrestricted as to withdrawal and use.

Short-term investments

Short-term investments consist primarily of investments in money market funds, which are measured at fair value and are expected to be redeemed within one year. As of June 30, 2024 and December 31, 2023, there were no short-term investments held by the Group.

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Accounts receivable and allowance for doubtful accounts

Account receivable is recorded when the Group has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. Accounts receivable is carried at net realizable value. The allowance for credit losses reflects the best estimate of future losses over the contractual life of outstanding accounts receivable and is determined on the basis of historical experience, specific allowances for known troubled accounts, other currently available information including customer financial condition, and both current and forecasted economic conditions.

Fair value measurements

The Group applies ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided for fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs which are supported by little or no market activity.

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

The carrying amounts of cash and cash equivalent, accounts receivable, amounts due to related parties and other current assets, accounts payable, amounts due to related parties, accrued liabilities and other current liabilities and short-term borrowings approximate their fair values because of their generally short maturities. The carrying amount of long-term borrowings approximate their fair values since they bear interest rates which approximate market interest rates.

The Group did not transfer any assets or liabilities in or out of Level 3 during the year ended December 31, 2023 or during the six months ended June 30, 2024.

The Group had no financial assets and liabilities measured and recorded at fair value on a nonrecurring basis as of December 31, 2023 and June 30, 2024.

Property, equipment and software

Property and equipment and software are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets as follows:


Category		Estimated Useful Life
Machinery and laboratory equipment		5 years
Vehicles		4 years
Furniture and tools		3 - 5 years
Electronic equipment		3 years
Computer software		3 - 5 years
Leasehold improvements		Lesser of lease terms or estimated useful lives of the assets

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Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterments that extend the useful lives of property, equipment and software are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation and amortization from the asset and accumulated depreciation and amortization accounts with any resulting gain or loss reflected in the condensed consolidated statements of comprehensive loss.

Impairment of long-lived assets

The Group evaluates the recoverability of its long-lived assets, including fixed assets and intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. When these events occur, the Group measures impairment by comparing the carrying amount of the assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. The adjusted carrying amount of the assets is the new cost basis and is depreciated over the assets’ remaining useful lives. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

No impairment loss was recorded for the six months ended June 30, 2023 and 2024.

Segment reporting

In accordance with ASC 280, Segment Reporting, the Group’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer. The Group’s CODM reviews the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group. The Group operates and manages it business as a single segment. No geographical segments are presented as a substantial portion of the Group’s long-lived assets are located in the PRC with the exception of certain laboratory and electronic equipment which are located in the U.S.

Revenue recognition

At contract inception of collaboration and out-licensing arrangements, the Group analyzes its arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Group first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are reflective of a vendor-customer relationship and therefore within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”). For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently. Under the criteria of ASC 606, the Group recognizes revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services.

The Group adopted ASC 606 for all periods presented. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Group only applies the five-step model to contracts when it is probable that the entity will collect substantially all the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. The Group reviews the contract to determine which performance obligations are distinct and represent a promise to provide distinct goods or services or a series of distinct goods or services as defined by the standard. The Group recognizes as revenue the amount of the transaction price that is allocated to each performance obligation as and when that performance obligation is satisfied.

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Licenses of Intellectual Property: Upfront non-refundable payments for licensing the Group’s intellectual property are evaluated to determine if the license is distinct from the other performance obligations identified in the arrangement. For licenses determined to be distinct, the Group recognizes revenues from non-refundable, up-front fees allocated to the license at a point in time, when the transfer of control of the license to the licensee occurs and the licensee is able to use and benefit from the license. For licenses determined not to be distinct, the Group accounts for the promise to grant a license and those other promised goods or services together as a single performance obligation when recognizing revenue.

Research and Development Services: The portion of a transaction price allocated to research and development services performance obligations is deferred and recognized as collaboration revenue over time as delivery or performance of such services occurs.

Milestone Payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Group evaluates whether the milestones are considered probable of being reached and to the extent that a significant reversal of cumulative revenue would not occur in future periods, estimates the amount to be included in the transaction price using the most likely amount method. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Group recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Group re-evaluates the probability of achieving such development milestones and any related constraint, and if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Group recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Contract assets and contract liabilities

When a customer pays consideration before the Group transfers products or services, the Group records its obligation as a contract liability; When the Group satisfies its performance obligations by providing products or services to a customer before the customer pays consideration and before payment is due, the Group recognizes its rights to consideration as a contract asset.

Other operating income, net

Other operating income, net included a one-time compensation payment from a contract manufacturer in relation to the Group’s losses for a preclinical-related outsourcing arrangement.

Research and development expenses

Elements of research and development expenses primarily include (1) payroll and other related costs of personnel engaged in research and development activities, (2) costs related to pre-clinical testing of the Group’s technologies under development and clinical trials such as payments to contract research organizations (“CRO”) and contract development and manufacturing organizations (“CDMO”), investigators and clinical trial sites that conduct the clinical studies; (3) costs to develop the product candidates, including raw materials and supplies, product testing, depreciation and amortization, and facility related expenses, and (4) other research and development expenses. Research and development costs are expensed as incurred when the related research and development services are provided to the Group and the resulting assets, if any, have no alternative future uses. As of December 31, 2023 and June 30, 2024, the Group had several ongoing clinical studies in various clinical trial stages. The contracts with CRO and CDMO are generally cancellable, with notice, at the Group’s option. The Group did not record any accrued expenses related to cancellation of CRO or CDMO contracts as of December 31, 2023 or June 30, 2024 as the Group did not have any plan to cancel the existing CRO or CDMO contracts.

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Government subsidies

Government subsidies primarily consist of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance with specific policies promoted by the governments. The Group’s PRC based subsidiary received government subsidies from certain local government. The Group’s government subsidies consist of specific subsidies and other subsidies. Specific subsidies are subsidies that the local government has set certain conditions for the subsidies. Other subsidies are the subsidies that the local government has not set any conditions and are not tied to future trends or performance of the Group, receipt of such subsidy income is not contingent upon any further actions or performance of the Group and the amounts do not have to be refunded under any circumstances. These specific subsidies are recorded as other non-current liabilities upon receipt and are recognized as other income when the conditions are met. Other subsidies are recognized as other income upon receipt as further performance by the Group is not required.

Government subsidies of US$0.1 million and US$7 thousand were received and recognized as other income during the six months ended June 30, 2023 and 2024, respectively.

Leases

In accordance with ASC 842, Leases (“ASC 842”), the Group determines if an arrangement is or contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and lease liabilities on the condensed consolidated balance sheet. Lease liabilities that become due within one year of the balance sheet date are classified as current liabilities. The Group does not have any finance leases since the adoption date.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and lease liabilities are calculated as the present value of the lease payments not yet paid. As the rate implicit in the Group’s leases is not typically readily available, the Group uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. This incremental borrowing rate reflects the fixed rate at which the Group could borrow the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. ROU assets include any lease prepayments and are reduced by lease incentives. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease terms are based on the non-cancelable term of the lease and may contain options to extend the lease when it is reasonably certain that the Group will exercise that option.

The Group has elected to adopt the following lease policies in conjunction with the adoption of ASU 2016-02: (i) elect for each lease not to separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component; (ii) for leases that have lease terms of 12 months or less and does not include a purchase option that is reasonably certain to exercise, the Group elected not to apply ASC 842 recognition requirements; and (iii) the Group elected to apply the package of practical expedients for existing arrangements entered into prior to January 1, 2022 to not reassess (a) whether an arrangement is or contains a lease, (b) the lease classification.

Comprehensive income (loss)

Comprehensive income (loss) is defined as the changes in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Accumulated other comprehensive income (loss) of the Group includes foreign currency translation adjustments related to the Group and its subsidiaries whose functional currency is not US$.

Income taxes

The Group follows the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.

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The Group evaluates its uncertain tax positions using the provisions of ASC 740, which prescribes a recognition threshold that a tax position is required to meet before being recognized in the condensed consolidated financial statements.

The Group recognizes in the condensed consolidated financial statements the benefit of a tax position which is “more likely than not” to be sustained under examination based solely on the technical merits of the position assuming a review by tax authorities having all relevant information. Tax positions that meet the recognition threshold are measured using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. It is the Group’s policy to recognize interest and penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the condensed consolidated statements of comprehensive loss over the period of the borrowings using the effective interest method.

Share-based compensation

The Company grants restricted shares and stock options to eligible employees and nonemployees and accounts for share-based compensation in accordance with ASC 718, Compensation—Stock Compensation.

Share-based compensation awards are measured at the grant date fair value of the awards and recognized as expenses (a) immediately at the grant date if no vesting conditions are required; (b) for share-based awards granted with only service conditions, using the straight-line method over the vesting period; or (c) for share-based awards granted with service conditions and performance conditions, using the graded vesting method over the vesting period if and when the Company concludes that it is probable that the performance conditions will be achieved.

A change in any of the terms or conditions of share-based awards is accounted for as a modification of the awards. The Group calculates incremental compensation expense of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified at the modification date. For vested awards, the Group recognizes incremental compensation cost in the period when the modification occurs. For awards not being fully vested, the Group recognizes the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original awards over the remaining requisite service period after modification.

Net loss per share

In accordance with ASC 260, Earnings Per Share, basic net loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of unrestricted ordinary shares outstanding during the year using the two-class method. Under the two-class method, net loss is allocated between ordinary shares and other participating securities based on dividends declared (or accumulated) and participating rights in undistributed earnings as if all the earnings for the reporting period had been distributed. Diluted net loss per share is calculated by dividing net loss attributable to ordinary shareholders, as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares include ordinary shares issuable upon the exercise of share options, using the treasury stock method. Ordinary share equivalents are excluded from the computation of diluted earnings per share if their effects are anti-dilutive. For the periods presented herein, the computation of basic net loss per share using the two-class method is not applicable as the Group is in a net loss position and the participating securities do not have contractual rights and obligations to share in the losses of the Group.

Employee defined contribution plan

As stipulated by the regulations of the PRC, full-time employees of the Group are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The Group is required to accrue for these benefits based on certain percentages of the qualified employees’ salaries. The Group is required to make contributions to the plans out of the amounts accrued. The PRC government is responsible for the medical benefits and the pension liability to be paid to these employees and the Group’s obligations are limited to the amounts contributed. The Group has no further payment obligations once the contributions have been paid. The Group recorded employee benefit expenses of US$1,451,033 and US$1,142,843 for the six months ended June 30, 2023 and 2024, respectively.

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Concentration of risks

Concentration of credit risk

As of December 31, 2023 and June 30, 2024, the amount of cash and cash equivalents of US$6,538,253 and US$6,662,939 respectively, were held at major financial institutions located in Mainland China, and US$103,396,004 and US$89,010,848, respectively, were deposited with major financial institutions located outside of Mainland China. Management believes that these financial institutions are of high credit quality and continually monitors the credit worthiness of these financial institutions.

Accounts receivable is typically unsecured and denominated in US$ and is derived from revenues earned from customers. The Group manages credit risk of accounts receivable through ongoing monitoring of the outstanding balances.

Concentration of suppliers

For the six months ended June 30, 2023, there were no suppliers who collectively accounted for more than 10% of the Group’s total research and development services. For the six months ended June 30, 2024, a significant portion of the Group’s research and development services were purchased from one supplier group, who collectively accounted for 15.0% of the Group’s total research and development services purchases.

Business and economic risk

The Group believes that changes in any of the following areas could have a material adverse effect on the Group’s future consolidated financial position, results of operations or cash flows: changes in the overall demand for services; competitive pressures due to new entrants; advances and new trends in new technologies and industry standards; changes in certain strategic relationships; regulatory considerations and risks associated with the Group’s ability to attract employees necessary to support its growth. The Group’s operations could also be adversely affected by significant political, regulatory, economic and social uncertainties in the PRC.

Foreign currency exchange rate risk

A significant portion of the Group’s businesses are transacted in RMB, which is not a freely convertible currency. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the PBOC. However, the unification of the exchange rates does not imply that the RMB may be readily convertible into US$ or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For U.S. dollar against RMB, there was appreciation of approximately 3.75% and 0.62% in the six months ended June 30, 2023 and 2024, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

The functional currency and the reporting currency of the Company are the US$. However, the Group incurs portions of our expenses, and derives revenues, in currencies other than US$, in particular, the RMB. Any significant fluctuation of the valuation of RMB may materially affect the Group’s cash flows, expenses, losses and financial position, and the value of any dividends payable on the American Depositary Shares in US$.

Recently issued accounting pronouncements

The Group is an emerging growth company (“EGC”) as defined by the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act provides that an EGC can take advantage of extended transition periods for complying with new or revised accounting standards. This allows an EGC to delay adoption of certain accounting standards until those standards would otherwise apply to private companies. The Group elected to take advantage of the extended transition periods. However, this election will not apply should the Group cease to be classified as an EGC.

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New and amended standards adopted by the Group

In August 2020, FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments and also increases information transparency by making disclosure amendments. The standard is effective for private companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Group has adopted ASU 2016-13 and the impact of this adoption was assessed to be not material.

New and amended standards not yet adopted by the Group

In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which improves the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. The standard shall be applied retrospectively to all prior periods presented in the financial statements. The standard is effective for fiscal years beginning after December 15, 2023 and interim periods in fiscal years beginning after December 15, 2024. The Group is currently evaluating the impact of this accounting standard update on its consolidated financial statements as of and for the year ended December 31, 2024.

In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The standard is effective for public entities for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. The standard allows the amendments to be applied the standard on a prospective basis or a retrospective basis. The Group is currently evaluating the impact of this accounting standard update on its consolidated financial statements as of and for the year ended December 31, 2024.

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3. PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments and other current assets consisted of the following:


	As of December 31,	As of June 30,
	2023	2024
	US$	US$
Prepayments	591,383	423,356
Deposits (a)	1,790,637	1,871,670
Others	905,425	804,336
	3,287,445	3,099,362

Note (a): The deposits represented the amounts that the Group paid to its CRO vendors for various outsourced research and development programs according to the terms of respective CRO agreements. The Group expects to recover the deposits if the programs fail or the agreements are cancelled.

4. PROPERTY, EQUIPMENT AND SOFTWARE, NET

Property, equipment and software consisted of the following:


	As of December 31,	As of June 30,
	2023	2024
	US$	US$
Machinery and laboratory equipment	5,201,479	5,171,471
Leasehold improvements	1,037,675	1,031,254
Electronic equipment	1,818,352	1,815,343
Furniture and tools	42,821	49,509
Vehicles	78,928	78,439
Software	363,943	361,843
Total property, equipment and software	8,543,198	8,507,859
Less: accumulated depreciation and amortization	(6,708,077)	(7,068,757)
Net book value	1,835,121	1,439,102

Depreciation and amortization expenses recognized for the six months ended June 30, 2023 and 2024 were US$518,199 and US$399,798 respectively.

5. ACCRUALS AND OTHER CURRENT LIABILITIES

Accrued liabilities and other current liabilities consisted of the following:


	As of December 31,	As of June 30,
	2023	2024
	US$	US$
Professional service fees	1,194,199	1,093,869
Payroll and related liabilities	1,177,301	952,336
Other taxes and surcharge	510,259	490,249
Others	119,749	122,078
	3,001,508	2,658,532

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6. BORROWINGS


	As of December 31,	As of June 30,
	2023	2024
	US$	US$
Current
Short-term borrowings:
Bank loans	4,235,673	4,209,463
Current portion of long-term borrowings	4,161,549	11,765,449
Total current borrowings	8,397,222	15,974,912
Non-Current
Long-term borrowings:
Bank loans	13,540,034	4,560,251
Total non-current borrowings	13,540,034	4,560,251
Total borrowings	21,937,256	20,535,163

Short-term borrowings

In March 2022, the Group borrowed a loan with the amount of RMB9,900,000 from China Merchants Bank Co., Ltd. for a term of one year at the interest rate of 3.90% per annum. The borrowing was repaid in March 2023.

In April 2022, the Group borrowed another loan with the amount of RMB20,100,000 from China Merchants Bank Co., Ltd. for a term of one year at the interest rate of 3.70% per annum. The borrowing was repaid in April 2023.

In July 2022, the Group borrowed a loan with the amount of RMB20,000,000 from Bank of Jiangsu Co., Ltd. for a term of one year at the interest rate of 3.70% per annum. The borrowing was repaid in July 2023.

In December 2022, the Group borrowed another loan with the amount of RMB25,000,000 from China Construction Bank Corporation for a term of one year at the interest rate of 3.65% per annum. The borrowing was repaid in December 2023.

In January 2023, the Group borrowed a loan with the amount of RMB10,000,000 from Bank of Ningbo for a term of one year at the interest rate of 3.90% per annum. The borrowing was repaid in January 2024.

In March 2023, the Group borrowed a loan with the amount of RMB10,000,000 from China Everbright Bank for a term of one year at the interest rate of 3.80% per annum. The borrowing was repaid in April 2024.

In July 2023, the Group borrowed a loan with the amount of RMB10,000,000 from Bank of Ningbo for a term of one year at the interest rate of 3.85% per annum. The borrowing was repaid in July 2024.

In June 2024, the Group borrowed a loan with the amount of RMB20,000,000 from China Construction Bank Corporation for a term of one year at the interest rate of 3.50% per annum.

Long-term borrowings

In September 2020, the Group borrowed a loan with the amount of RMB16,500,000 from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 4.27% per annum. The Group repaid RMB1,650,000 in 2021,RMB3,850,000 in 2022 and RMB11,000,000 in 2023. The loan was fully repaid in September 2023.

In September 2021, the Group borrowed a loan with the amount of RMB8,500,000 from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 4.05% per annum. The Group repaid RMB425,000 in 2022, RMB850,000 in 2023, and RMB1,225,000 during the six months ended 2024. As of December 31, 2023 and June 30, 2024, RMB7,225,000 and RMB6,000,000 repayable within twelve months for this agreement were classified as “Current portion of long-term borrowing” on the condensed consolidated balance sheets, respectively.

F-16

Table of Contents

In May 2022, the Group borrowed a loan with the amount of RMB30,000,000 from Agricultural Bank of China Limited for a term of three years at the interest rate of 4.00% per annum. The Group repaid RMB3,000,000 in 2023 and RMB5,000,000 during the six months ended 2024. As of December 31, 2023 and June 30, 2024, RMB5,000,000 and RMB22,000,000 repayable within twelve months for this agreement was classified as "Current portion of long - term borrowing" on the condensed consolidated balance sheets, respectively.

Also in May 2022, the Group borrowed a loan with the amount of RMB20,000,000 from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 4.00% per annum. The Group repaid RMB500,000 in 2022, RMB1,500,000 in 2023, and RMB1,000,000 during the six months ended 2024. As of December 31, 2023 and June 30, 2024, RMB9,500,000 and RMB17,000,000 repayable within twelve months for this agreement was classified as “Current portion of long-term borrowing” on the condensed consolidated balance sheets, respectively.

In August 2022, the Group borrowed a loan with the amount of RMB9,900,000 from Agricultural Bank of China Limited for a term of three years at the interest rate of 4.00% per annum. The Group repaid RMB1,000,000 in 2023 and made no repayments during the six months ended June 30, 2024. As of December 31, 2023 and June 30, 2024, RMB2,000,000 repayable within twelve months for this agreement was classified as “Current portion of long-term borrowing” on the condensed consolidated balance sheets, respectively.

Also in August 2022, the Group borrowed a loan with the amount of RMB20,000,000 from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 4.00% per annum. The Group repaid RMB1,000,000 in 2023 and RMB1,000,000 during the six months ended 2024. As of December 31, 2023 and June 30, 2024, RMB2,000,000 and RMB9,500,000 repayable within twelve months for this agreement was classified as “Current portion of long-term borrowing” on the condensed consolidated balance sheets, respectively.

In November 2022, the Group borrowed a loan with the amount of RMB9,900,000 from Agricultural Bank of China Limited for a term of three years at the interest rate of 4.00% per annum. The Group repaid RMB1,000,000 in 2023 and made no repayments during the six months ended June 30, 2024. As of December 31, 2023 and June 30, 2024, RMB2,000,000 repayable within twelve months for this agreement was classified as “Current portion of long-term borrowing” on the condensed consolidated balance sheets, respectively.

Also in November 2022, the Group borrowed a loan with the amount of RMB10,000,000 from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 4.00% per annum. The Group repaid RMB500,000 in 2023 and RMB500,000 during the six months ended June 30, 2024. As of December 31, 2023 and June 30, 2024, RMB1,000,000 and RMB4,750,000 repayable within twelve months for this agreement was classified as “Current portion of long-term borrowing” on the condensed consolidated balance sheets, respectively.

In April 2023, the Group borrowed a loan with the amount of RMB7,000,000 from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 3.90% per annum. The Group repaid RMB150,000 in 2023 and RMB200,000 during the six months ended June 30, 2024. As of December 31, 2023 and June 30, 2024, RMB

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