0001104659-23-052043 | 20-F | XBRL Viewer

Document and Entity Information	12 Months Ended
Document and Entity Information	Dec. 31, 2022 shares
Document and Entity Information
Document Type	20-F
Document Registration Statement	false
Document Annual Report	true
Document Transition Report	false
Document Shell Company Report	false
Document Period End Date	Dec. 31, 2022
Entity File Number	001-39997
Entity Registrant Name	Adagene Inc.
Entity Incorporation, State or Country Code	E9
Entity Address, Address Line One	4F, Building C14, No. 218
Entity Address, Address Line Two	Xinghu Street, Suzhou Industrial Park
Entity Address, City or Town	Suzhou
Entity Address, Postal Zip Code	215123
Entity Address, Country	CN
Entity Common Stock, Shares Outstanding	54,065,709
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
ICFR Auditor Attestation Flag	false
Document Accounting Standard	U.S. GAAP
Entity Shell Company	false
Entity Central Index Key	0001818838
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	FY
Amendment Flag	false
Auditor Name	PricewaterhouseCoopers Zhong Tian LLP
Auditor Firm ID	1424
Auditor Location	Shanghai, the People’s Republic of China
Business Contact
Document and Entity Information
Entity Address, Address Line One	10179 Huennekens Street Suite 103
Entity Address, City or Town	San Diego
Entity Address State Or Province	CA
Contact Personnel Name	Peter Luo
Contact Personnel Email Address	peter_luo@adagene.com
Country Region	86
City Area Code	512
Local Phone Number	87773616
American depositary shares
Document and Entity Information
Title of 12(b) Security	American depositary shares
Trading Symbol	ADAG
Security Exchange Name	NASDAQ
Common Stock [Member]
Document and Entity Information
Title of 12(b) Security	Ordinary shares, par value US$0.0001 per share
No Trading Symbol Flag	true
Security Exchange Name	NASDAQ

CONSOLIDATED BALANCE SHEETS - USD ($)	Dec. 31, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 143,758,678	$ 174,391,243
Accounts receivable, net		3,000,000
Amounts due from related parties	619,432	4,506,670
Prepayments and other current assets	4,937,323	4,055,921
Total current assets	149,315,433	185,953,834
Property, equipment and software, net	2,782,963	3,487,617
Operating lease right-of-use assets	191,877
Other non-current assets	109,572	69,275
TOTAL ASSETS	152,399,845	189,510,726
Current liabilities:
Accounts payable	3,666,124	3,321,615
Contract liabilities	15,107,276	5,500,000
Amounts due to related parties	19,323,337	10,466,061
Accruals and other current liabilities	3,212,809	4,379,243
Income tax payable		1,657,450
Short-term borrowings	10,768,745	3,121,226
Current portion of long-term borrowings	2,850,128	1,376,319
Current portion of operating lease liabilities	151,983
Total current liabilities	55,080,402	29,821,914
Long-term borrowings	14,146,541	2,991,829
Operating lease liabilities	53,834
Deferred tax liabilities		44,163
Other non-current liabilities	28,718	94,107
TOTAL LIABILITIES	69,309,495	32,952,013
Commitments and contingencies
Shareholders' equity:
Ordinary shares (par value of US$0.0001 per share; 640,000,000 shares authorized, and 54,595,667 shares issued and outstanding as of December 31, 2021; and 640,000,000 shares authorized, 54,065,709 shares issued and outstanding as of December 31, 2022)	5,497	5,627
Treasury shares, at cost (94,074 shares as of December 31, 2021 and 1 share as of as of December 31, 2022)	(4)	(619,605)
Additional paid-in capital	342,739,268	336,099,931
Accumulated other comprehensive loss	(849,305)	(93,981)
Accumulated deficit	(258,805,106)	(178,833,259)
Total shareholders' equity	83,090,350	156,558,713
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 152,399,845	$ 189,510,726

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)	12 Months Ended
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Revenue
Licensing and collaboration revenue	$ 9,292,724	$ 10,175,258	$ 700,913
Expenses
Research and development expenses	(81,339,540)	(68,099,385)	(33,538,035)
Third parties	(46,212,077)	(55,020,367)	(23,645,740)
Related parties	(35,127,463)	(13,079,018)	(9,892,295)
Administrative expenses	(11,873,867)	(14,439,962)	(10,314,536)
Loss from operations	(83,920,683)	(72,364,089)	(43,151,658)
Interest income	377,501	76,166	629,288
Interest expense	(693,323)	(363,762)	(202,165)
Other income, net	2,168,388	1,778,822	971,949
Foreign exchange gain (loss), net	2,555,325	(603,459)	(644,693)
Loss before income tax	(79,512,792)	(71,476,322)	(42,397,279)
Income tax expense	(459,055)	(1,701,613)
Net loss attributable to Adagene Inc.'s shareholders	(79,971,847)	(73,177,935)	(42,397,279)
Other comprehensive income (loss)
Foreign currency translation adjustments, net of nil tax	(755,324)	257,000	(6,087)
Total comprehensive loss attributable to Adagene Inc.'s shareholders	(80,727,171)	(72,920,935)	(42,403,366)
Net loss attributable to Adagene Inc.'s shareholders	(79,971,847)	(73,177,935)	(42,397,279)
Accretion of convertible redeemable preferred shares to redemption value		(28,553)	(248,113)
Net loss attributable to ordinary shareholders	$ (79,971,847)	$ (73,206,488)	$ (42,645,392)
Weighted average number of ordinary shares used in per share calculation:
-Basic	54,135,084	50,032,009	15,950,698
-Diluted	54,135,084	50,032,009	15,950,698
Net loss per ordinary share
-Basic	$ (1.48)	$ (1.46)	$ (2.67)
-Diluted	$ (1.48)	$ (1.46)	$ (2.67)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT) - USD ($)	Ordinary shares	Treasury Stock	Subscriptions receivable from shareholders	Additional paid in capital	Accumulated other comprehensive loss	Accumulated deficit	Total
Balance at the beginning at Dec. 31, 2019	$ 1,519		$ (197,068)	$ 6,789,542	$ (344,894)	$ (63,258,045)	$ (57,008,946)
Balance at the beginning (in shares) at Dec. 31, 2019	15,193,136
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
Net loss						(42,397,279)	(42,397,279)
Other comprehensive income (loss)					(6,087)		(6,087)
Exercise of share options	$ 370		(6,975,124)	7,115,682			$ 140,928
Exercise of share options (in shares)	3,694,934						3,694,934
Sharebased compensation				10,129,541			$ 10,129,541
Accretion of convertible redeemable preferred shares to redemption value				(248,113)			(248,113)
Balance at the end at Dec. 31, 2020	$ 1,889		(7,172,192)	23,786,652	(350,981)	(105,655,324)	(89,389,956)
Balance at the end (in shares) at Dec. 31, 2020	18,888,070
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
Net loss						(73,177,935)	(73,177,935)
Other comprehensive income (loss)					257,000		257,000
Exercise of share options	$ 23			226,758			$ 226,781
Exercise of share options (in shares)	233,957						233,958
Issuance of ordinary shares under performance incentive plan	$ 2			416,749			$ 416,751
Issuance of ordinary shares under performance incentive plan (in shares)	23,734
Subscription from shareholders			381,282				381,282
Sharebased compensation				18,679,658			18,679,658
Accretion of convertible redeemable preferred shares to redemption value				(28,553)			(28,553)
Conversion of convertible redeemable preferred shares to ordinary shares upon the completion of initial public offering	$ 2,725			154,475,235			154,477,960
Conversion of preferred shares to ordinary shares upon the completion of initial public offering (in shares)	27,249,824
Issuance of ordinary shares upon IPO, net of issuance cost	$ 1,057			147,094,280			147,095,337
Issuance of ordinary shares upon IPO, net of issuance cost (in shares)	10,571,375
Purchase of treasury shares under share repurchase program		$ (2,361,576)					(2,361,576)
Purchase of treasury shares under share repurchase program (in shares)		(295,174)
Retirement of treasury shares	$ (20)	$ 1,741,971		(1,750,041)			(8,090)
Retirement of treasury shares (in shares)	(201,100)	201,100
Surrender of ordinary shares for repayment of promissory notes	$ (49)		$ 6,790,910	(6,800,807)			(9,946)
Surrender of ordinary shares for repayment of promissory notes (in shares)	(491,119)
Balance at the end at Dec. 31, 2021	$ 5,627	$ (619,605)		336,099,931	(93,981)	(178,833,259)	$ 156,558,713
Balance at the end (in shares) at Dec. 31, 2021	56,274,741
Balance at the end (in shares) at Dec. 31, 2021		(94,074)					(94,074)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
Net loss						(79,971,847)	$ (79,971,847)
Other comprehensive income (loss)					(755,324)		(755,324)
Exercise of share options	$ 20			323,192			$ 323,212
Exercise of share options (in shares)	197,975						197,975
Issuance of ordinary shares under performance incentive plan	$ 10			391,985			$ 391,995
Issuance of ordinary shares under performance incentive plan (in shares)	99,999
Sharebased compensation				10,520,282			10,520,282
Purchase of treasury shares under share repurchase program		$ (3,976,681)					(3,976,681)
Purchase of treasury shares under share repurchase program (in shares)		(1,512,932)
Retirement of treasury shares	$ (160)	$ 4,596,282		(4,596,122)
Retirement of treasury shares (in shares)	(1,607,005)	1,607,005
Balance at the end at Dec. 31, 2022	$ 5,497	$ (4)		$ 342,739,268	$ (849,305)	$ (258,805,106)	$ 83,090,350
Balance at the end (in shares) at Dec. 31, 2022	54,965,710
Balance at the end (in shares) at Dec. 31, 2022		(1)					(1)

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	12 Months Ended
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Cash flows from operating activities:
Net loss	$ (79,971,847)	$ (73,177,935)	$ (42,397,279)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,145,995	1,125,032	858,408
Net loss on disposal of property, equipment, software and operating lease right-of-use asset	6,811	18,973	327
Share-based compensation	10,520,282	18,679,658	10,129,541
Interest income on promissory notes		(9,946)
Amortization of right-of use assets and interest of lease liabilities	303,535
Foreign exchange loss (gain), net	(2,555,325)	603,459	644,693
Changes in operating assets and liabilities:
Accounts receivable, net	3,000,000	(3,000,000)	480,000
Prepayments and other current assets	(881,402)	(231,287)	(2,337,011)
Amount due from related parties	3,887,238	(4,374,274)	1,300,790
Other non-current assets	(40,297)	(24,210)	(13,292)
Accounts payable	344,509	1,511,640	1,097,261
Contract liabilities	9,607,276	4,774,464	(267,842)
Amount due to related parties	8,857,276	7,930,703	639,579
Accruals and other current liabilities	(823,928)	1,057,491	1,243,150
Lease liabilities	(280,465)
Income tax payable	(1,657,450)	1,657,450
Deferred tax liabilities	(44,163)	44,163
Other non-current liabilities	(29,732)		91,955
Net cash used in operating activities	48,611,687	43,414,619	28,529,720
Cash flows from investing activities:
Withdrawal of short-term investments			8,000,000
Proceeds from disposal of property, equipment and software	4,892		7,930
Purchase of property, equipment and software	(690,938)	(2,509,926)	(935,199)
Net cash generated from (used in) investing activities	(686,046)	(2,509,926)	7,072,731
Cash flows from financing activities:
Proceeds from borrowings	25,830,030	4,386,860	6,083,650
Proceeds from share subscriptions		381,282
Proceeds from exercise of share options	323,212	231,521	140,928
Proceeds from initial public offering, net of underwriting commissions		149,411,950
Repayment of borrowings	(4,353,588)	(5,089,717)	(1,063,670)
Payment of initial public offering costs		(1,595,088)	(721,532)
Purchase of treasury shares under stock repurchase program	(3,976,681)	(2,361,576)
Costs for retirement of treasury shares		(8,090)
Net cash generated from financing activities	17,822,973	145,357,142	4,439,376
Effect of exchange rate on cash and cash equivalents	842,195	(192,352)	(364,177)
Net increase (decrease) in cash and cash equivalents	(30,632,565)	99,240,245	(17,381,790)
Cash and cash equivalents at the beginning of year	174,391,243	75,150,998	92,532,788
Cash and cash equivalents at the end of year	143,758,678	174,391,243	75,150,998
Supplemental cash flow disclosures:
Interest paid	603,680	359,569	202,165
Income tax paid	2,433,241
Cash paid for fixed operating lease costs included in the measurement of lease obligations in operating activities	313,929
Right-of-use assets obtained in exchange for operating lease obligations	217,227
Non-cash activities:
Accretion of convertible redeemable preferred shares to redemption value		28,553	248,113
Conversion of preferred shares		154,477,960
Payables for deferred initial public offering cost			$ 2,276,183
Retirement of treasury shares	$ 4,596,282	1,741,971
Surrender of ordinary shares for repayment of promissory notes		$ 6,800,856

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). 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 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 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 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 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 year. Translation adjustments are reported as accumulated comprehensive loss and are shown as a separate component of other comprehensive loss in the 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.

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. An allowance for doubtful accounts is recorded in the period when collection of the amount is no longer probable. In evaluating the collectability of receivable balances, the Group considers specific evidence including the aging of the receivable, the customer’s payment history, its current credit-worthiness and other factors. Accounts receivable is written off when management determines a balance is uncollectable after all collection efforts have ceased.

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 years ended December 31, 2021 or 2022.

The Group had no financial assets and liabilities measured and recorded at fair value on a nonrecurring basis as of December 31, 2021 and 2022.

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

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 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 years ended December 31, 2020, 2021 and 2022.

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.

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.

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 manufacturing organizations (“CMO”), 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, 2021 and 2022, the Group had several ongoing clinical studies in various clinical trial stages. The contracts with CRO and CMO are generally cancellable, with notice, at the Group’s option. The Group did not record any accrued expenses related to cancellation of CRO or CMO contracts as of December 31, 2021 or 2022 as the Group did not have any plan to cancel the existing CRO or CMO contracts.

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. In addition, the Group’s Australian subsidiary received research and development tax incentive from the Australian Taxation Office. The tax incentive was recognized as other income upon receipt as the incentive was not dependent upon having a tax liability and further performance by the Group was not required.

Government subsidies of US$0.8 million, US$1.4 million and US$2.1 million were received and recognized as other income during the years ended December 31, 2020, 2021 and 2022, respectively.

Leases

Prior to the adoption of ASC 842, Leases ("ASC 842") on January 1, 2022:

Leases, mainly leases of office spaces where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases are recognized as an expense on a straight-line basis over the lease term. The Group had no capital leases for any of the years stated herein.

Upon and hereafter the adoption of ASC 842 on January 1, 2022:

The Group determines if an arrangement is or contains a lease at inception. For arrangements that meet the definition of a lease, the Group determines the classification of the lease based on the relevant factors present and records a right-of-use ("ROU") asset and lease liability at the lease commencement 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.

Operating leases are included in operating lease right-of-use assets and lease liabilities on the consolidated balance sheet. Lease liabilities that become due within one year of the balance sheet date are classified as current liabilities.

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.

In connection with the adoption of ASC 842 on January 1, 2022, the Group recorded an impact of approximately US$0.6 million and US$0.6 million for the recognition of operating lease right-of-use-assets and operating lease liabilities, respectively, on its consolidated balance sheet, which are primarily related to the lease of the Group’s offices. The adoption of ASC 842 did not have a material impact on the Group’s consolidated statements of comprehensive loss and cash flows.

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.

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 consolidated financial statements.

The Group recognizes in the 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 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$622,377 , US$2,223,493 and US$2,984,251 for the years ended December 31, 2020 , 2021 and 2022, respectively.

Concentration of risks

Concentration of credit risk

As of December 31, 2021 and 2022, the amount of cash and cash equivalents of US$3,650,474 and US$8,617,157 respectively, were held at major financial institutions located in Mainland China, and US$170,740,769 and US$135,141,521,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

A significant portion of the Group’s research and development services were purchased from one supplier group, who collectively accounted for 21.5%,18.5% and 34.1%of the Group’s total research and development services purchases for the years ended December 31, 2020, 2021 and 2022, respectively.

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 depreciation of approximately 2.29% in the year ended December 31,2021 and appreciation of approximately 9.24% in the year ended December 31, 2022, 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.

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-10 (“ASU 2018-10”), Codification Improvements to Topic 842, Leases, which clarifies certain aspects of the guidance issued in ASU 2016-02; and ASU No. 2018-11 (“ASU 2018-11”), Leases (Topic 842): Targeted Improvements, which provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current U.S. GAAP (Topic 840, Leases). Further, the FASB issued ASU No. 2020-05 (“ASU 2020-05”), Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which extends the adoption date for certain entities. For the Group, the updated guidance is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Group adopted the new guidance on January 1, 2022, using the alternative transition approach. For additional information, see Note 14, Leases.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Group’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In November 2019, the FASB issued ASU 2019-10, which extends the adoption date for certain registrants. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within fiscal years beginning after December 15, 2023. The Group does not plan to early adopt ASU 2016-13 and does not expect the adoption of ASU 2016-13 to have a material impact on the financial statements including the notes to the financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes as part of the FASB’s overall initiative to reduce complexity in accounting standards. The amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The update is effective in fiscal years beginning after December 15, 2021. Certain amendments in this update should be applied retrospectively or modified retrospectively, all other amendments should be applied prospectively. The Group adopted ASU 2019-12 in 2022 and the adoption of ASU 2019-12 did not have a material impact on the financial statements including the notes to the financial statements.

In August 2020, the 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 is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings (“TDR”) and Vintage Disclosures (“ASU 2022-02”). ASU 2022-02 eliminates the TDR recognition and measurement guidance, enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For entities that have not yet adopted ASU 2016-13, the ASU is effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity's adoption of ASU 2016-13. The Group has not adopted ASU 2016-13 and is currently in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.

BORROWINGS

12 Months Ended

Dec. 31, 2022

BORROWINGS

BORROWINGS

7. BORROWINGS


	As of December 31,
	2021	2022
	US$	US$
Current
Short-term borrowings:
Bank loans	3,121,226	10,768,745
Current portion of long-term borrowings	1,376,319	2,850,128
Total current borrowings	4,497,545	13,618,873
Non-Current
Long-term borrowings:
Bank loans	2,991,829	14,146,541
Total non-current borrowings	2,991,829	14,146,541
Total borrowings	7,489,374	27,765,414

Short-term borrowings

In June 2020, the Group borrowed a loan with the amount of RMB10,000,000 (equivalent to approximately US$1,532,591) from Agricultural Bank of China Limited for a term of one year at the interest rate of 4.2% per annum. The borrowing was repaid in June 2021.

In September 2020, the Group borrowed a loan with the amount of RMB5,000,000 (equivalent to approximately US$766,295) from Bank of Ningbo Co., Ltd. for a term of one year at the interest rate of 4.2% per annum. The borrowing was repaid in September 2021.

In November 2020, the Group borrowed a loan with the amount of RMB5,000,000 (equivalent to approximately US$770,962) from China Merchants Bank Co., Ltd. for a term of one year at the interest rate of 4.1% per annum. The borrowing was repaid in November 2021.

In November 2020, the Group borrowed another loan with the amount of RMB5,000,000 (equivalent to approximately US$770,962) from China Merchants Bank Co., Ltd. for a term of one year at the interest rate of 4.1% per annum. The borrowing was also repaid in November 2021.

In June 2021, the Group borrowed a loan with the amount of RMB9,900,000 (equivalent to approximately US$1,552,771) from Agricultural Bank of China Limited for a term of one year at the interest rate of 4.05% per annum. The borrowing was repaid in May 2022.

In August 2021, the Group borrowed another loan with the amount of RMB10,000,000 (equivalent to approximately US$1,568,455) from Agricultural Bank of China Limited for a term of one year at the interest rate of 4.05% per annum. The borrowing was repaid in August 2022.

In March 2022, the Group borrowed a loan with the amount of RMB9,900,000 (equivalent to approximately US$1,421,474) from China Merchants Bank Co., Ltd. for a term of one year at the interest rate of 3.90% per annum.

In April 2022, the Group borrowed another loan with the amount of RMB20,100,000 (equivalent to approximately US$2,886,024) from China Merchants Bank Co., Ltd. for a term of one year at the interest rate of 3.70% per annum.

In July 2022, the Group borrowed a loan with the amount of RMB20,000,000 (equivalent to approximately US$2,871,665) from Bank of Jiangsu Co., Ltd. for a term of one year at the interest rate of 3.70% per annum.

In December 2022, the Group borrowed another loan with the amount of RMB25,000,000 (equivalent to approximately US$3,589,582) from China Construction Bank Corporation for a term of one year at the interest rate of 3.65% per annum.

Long-term borrowings

In February 2019, the Group borrowed a loan with the amount of RMB7,500,000 (equivalent to approximately US$1,076,874) from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 5.46% per annum. The Group repaid RMB375,000 (equivalent to approximately US$53,844) in 2019, RMB1,250,000 (equivalent to approximately US$179,479) in 2020, RMB3,375,000 (equivalent to approximately US$484,594) in 2021 and RMB2,500,000 (equivalent to approximately US$358,958) in 2022. As of December 31, 2021, RMB2,500,000 (equivalent to approximately US$358,958) repayable within twelve months for this agreement was classified as “Current portion of long-term borrowing” on the consolidated balance sheets. The loan was fully repaid in February 2022.

In June 2019, the Group borrowed a loan with the amount of RMB6,000,000 (equivalent to approximately US$861,500) from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 5.23% per annum. The Group repaid RMB300,000 (equivalent to approximately US$43,075) in 2019, RMB1,000,000 (equivalent to approximately US$143,583) in 2020, RMB2,700,000 (equivalent to approximately US$387,675) in 2021, and RMB2,000,000 (equivalent to approximately US$287,167)in 2022. As of December 31, 2021, RMB2,000,000 (equivalent to approximately US$287,167) repayable within twelve months for this agreement was classified as “Current portion of long-term borrowing” on the consolidated balance sheets. The loan was fully repaid in June 2022.

In September 2020, the Group borrowed a loan with the amount of RMB16,500,000 (equivalent to approximately US$2,369,124) 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 (equivalent to approximately US$236,912) in 2021 and RMB3,850,000 (equivalent to approximately US$552,796) in 2022. As of December 31, 2021 and 2022, RMB3,850,000 (equivalent to approximately US$552,796) and RMB 11,000,000 (equivalent to approximately US$1,579,416) repayable within twelve months for this agreement were classified as “Current portion of long-term borrowing” on the consolidated balance sheets, respectively.

In September 2021, the Group borrowed a loan with the amount of RMB8,500,000 (equivalent to approximately US$1,220,458) 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 (equivalent to approximately US$61,023) in 2022. As of December 31, 2021 and 2022, RMB425,000 (equivalent to approximately US$61,023) and RMB850,000 (equivalent to approximately US$122,046) repayable within twelve months for this agreement were classified as “Current portion of long-term borrowing” on the consolidated balance sheets, respectively.

In May 2022, the Group borrowed a loan with the amount of RMB30,000,000 (equivalent to approximately US$4,307,498) from Agricultural Bank of China Limited for a term of three years at the interest rate of 4.00% per annum. As of December 31, 2022, RMB3,000,000 (equivalent to approximately US$430,750) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing" on the consolidated balance sheets.

Also in May 2022, the Group borrowed a loan with the amount of RMB20,000,000 (equivalent to approximately US$2,871,665) 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 (equivalent to approximately US$71,792) in 2022. As of December 31, 2022, RMB1,500,000 (equivalent to approximately US$215,375) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing" on the consolidated balance sheets.

In August 2022, the Group borrowed a loan with the amount of RMB9,900,000 (equivalent to approximately US$1,421,474) from Agricultural Bank of China Limited for a term of three years at the interest rate of 4.00% per annum. As of December 31, 2022, RMB1,000,000 (equivalent to approximately US$143,583) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing" on the consolidated balance sheets.

Also in August 2022, the Group borrowed a loan with the amount of RMB20,000,000 (equivalent to approximately US$2,871,665) from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 4.00% per annum. As of December 31, 2022, RMB1,000,000 (equivalent to approximately US$143,583) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing" on the consolidated balance sheets.

In November 2022, the Group borrowed a loan with the amount of RMB9,900,000 (equivalent to approximately US$1,421,474) from Agricultural Bank of China Limited for a term of three years at the interest rate of 4.00% per annum. As of December 31, 2022, RMB1,000,000 (equivalent to approximately US$143,583) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing" on the consolidated balance sheets.

Also in November 2022, the Group borrowed a loan with the amount of RMB10,000,000 (equivalent to approximately US$1,435,833) from Shanghai Pudong Development Bank Co., Ltd. for a term of three years at the interest rate of 4.00% per annum. As of December 31, 2022, RMB500,000 (equivalent to approximately US$71,792) repayable within twelve months for this agreement was classified as "Current portion of long-term borrowing" on the consolidated balance sheets.

The proceeds from the loans were primarily used to pay for the Group’s research and development activities in China, including CMC costs of clinical and preclinical programs. As of December 31, 2021 and 2022, none of the Group’s borrowings were collateralized in the respective loan agreements.

Future maturities of short-term borrowings and long-term borrowings

Future principal maturities of short-term borrowings and long-term borrowings as of December 31, 2021 and 2022 were as follows:


	As of December 31,
	2021	2022
	US$	US$
2022	4,497,545	—
2023	1,858,619	13,618,873
2024	1,133,210	4,124,429
2025	—	10,022,112
	7,489,374	27,765,414

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

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-Name Accounting Standards Codification
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Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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Reference 11: http://www.xbrl.org/2003/role/disclosureRef
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Reference 12: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS

12 Months Ended

Dec. 31, 2022

CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS

CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS

8. CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS

In November 2011, the Company issued convertible notes (“Series Pre-A Convertible Notes”) to certain investors in the amount of 4,590,908. The notes carried a simple interest (non-compounding) of 6% per annum as set out in the note purchase agreement. All outstanding principal balance and accrued but unpaid interest of the notes should be automatically converted into the convertible redeemable preferred shares of the Company at a price no more than US$1 per share.

In November 2014, the Company issued 5,473,957 Series A-1 convertible redeemable preferred shares (“Series A-1 Preferred Shares”) to certain investors upon conversion of the Company’s Series Pre-A convertible notes at a conversion price of US$1 per share. Concurrently, the Company issued 2,370,414 Series A-2 convertible redeemable preferred shares (“Series A-2 Preferred Shares”) to certain investors at US$1.27 per share for a total consideration of US$3,000,000. Series A-1 Preferred Shares and Series A-2 Preferred Shares are collectively referred to as the Series A Preferred Shares.

From January through June 2016, the Company issued 7,494,537 Series B convertible redeemable preferred shares (“Series B Preferred Shares”) to certain investors at US$3.74 per share for a total consideration of US$27,999,995.

From February through May 2018, the Company issued 5,597,354 Series C-1 convertible redeemable preferred shares (“Series C-1 Preferred Shares”) to certain investors at US$8.93 per share for a total consideration of US$50,000,033. Concurrently, in February 2018, the Company also issued warrants to two Series C-1 investors at nil consideration (“Series C-1 Warrants”). The Series C-1 Warrants allowed the holders to purchase Series C-2 Preferred Shares (defined below) at the exercise price of US$10.21 per share for a total consideration of up to US$7,500,000. Series C-1 Warrants were exercisable, in whole or in part, at any time from the warrant issuance date to the earlier of i) April 1, 2019, ii) a deemed liquidation event or iii) the closing of the Qualified IPO. Series C-1 Warrants expired on April 1, 2019.

From June through November 2019, the Company issued 1,861,121 Series C-2 convertible redeemable preferred shares (“Series C-2 Preferred Shares”) to certain investors at US$10.21 per share for a total consideration of US$18,999,999.

In December 2019, the Company issued 4,452,441 Series C-3 convertible redeemable preferred shares (“Series C-3 Preferred Shares”) to a certain investor at US$11.23 per share for a total consideration of US$50,000,000.

Series C-1 Preferred Shares, Series C-2 Preferred Shares and Series C-3 Preferred Shares are collectively referred to as the Series C Preferred Shares.

Upon completion of the IPO on February 11, 2021, each of the then outstanding Series A Preferred Shares, Series B Preferred Shares, and Series C Preferred Shares (collectively the “Preferred Shares”) was automatically converted into one ordinary share. As of December 31, 2021 and 2022, there were no preferred shares issued or outstanding.

Accounting for Preferred Shares

The Preferred Shares were classified as mezzanine equity in the consolidated balance sheets because they were contingently redeemable upon the occurrence of an event outside of the Company’s control (e.g. the Company not achieving a Qualified Public Offering or a deemed liquidation event before March 31, 2025 (“Target QIPO Date”)). The Preferred Shares were determined to be mezzanine equity with no embedded feature to be bifurcated and no beneficial conversion features to be recognized. The Preferred Shares were initially recorded at their respective issuance date fair value, net of issuance cost and fair value allocated to the detachable warrants. The Company did not incur material issuance cost for any Preferred Shares issued.

Prior to the IPO, the Company concluded that the Preferred Shares were not redeemable, but were probable to become redeemable. The Company accreted changes in the redemption value over the period from the date of issuance to the earliest redemption date for the year ended December 31, 2020, and to the IPO date for the year ended December 31, 2021, using the interest method. No accretion charge was recorded as the redemption value was fixed to original issue price for the periods presented, except for Series C-1 Preferred Shares issued with detachable warrants.

Modification of Preferred Shares

The Company made several amendments to the Preferred Shares, mainly including: 1) added redemption rights for Series A Preferred Shares upon the issuance of the Series B Preferred Shares; and 2) extended the Target QIPO Date upon the issuance of the Series C-1 Preferred Shares and the Series C-3 Preferred Shares. These amendments were accounted for as modifications rather than extinguishments as the fair values of these Preferred Shares immediately after the amendments were not significantly different from their respective fair values immediately before the amendment. When Preferred Shares are modified and such modification results in value transfer between preferred shareholders and ordinary shareholders, the value transferred is treated as a deemed dividend to or deemed contribution from the preferred shareholders.

The Company’s Preferred Shares activities for the periods presented were summarized below:


Mezzanine equity	Series A-1	Series A-2	Series B	Series C-1	Series C-2	Series C-3	Total
	US$	US$	US$	US$	US$	US$	US$
Balance as of December 31, 2019	5,473,957	3,000,000	27,999,995	48,727,343	18,999,999	50,000,000	154,201,294
Accretion of Series C-1 Preferred Shares to redemption value	—	—	—	248,113	—	—	248,113
Balance as of December 31, 2020	5,473,957	3,000,000	27,999,995	48,975,456	18,999,999	50,000,000	154,449,407
Accretion of Series C-1 Preferred Shares to redemption value				28,553			28,553
Conversion of Preferred Shares to Ordinary Shares	(5,473,957)	(3,000,000)	(27,999,995)	(49,004,009)	(18,999,999)	(50,000,000)	(154,477,960)
Balance as of December 31, 2021	—	—	—	—	—	—	—

SHARE-BASED COMPENSATION

12 Months Ended

Dec. 31, 2022

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

9. SHARE-BASED COMPENSATION

On November 7, 2015, the Company adopted a share incentive plan (the “2015 Plan”). Under the 2015 Plan, the Company’s Board of Directors has approved that a maximum aggregate number of shares that may be issued pursuant to all awards granted shall be 4,336,126. In September 2017, the Company replaced the 2015 Plan with the amended and restated share incentive plan (the “2017 Plan”) and increased the maximum number of shares issuable to 6,336,126. In December 2019, the Company replaced the 2017 Plan with the second amended and restated share incentive plan (the “2019 Plan”) and further increased the maximum number of shares issuable to 11,391,131. The terms of the 2015 Plan, 2017 Plan and 2019 Plan are substantially the same other than the maximum aggregate number of shares the Company may issue under the respective plan.

Share options containing only service conditions granted to each grantee under the share incentive plan will generally be exercisable upon the grantee renders service to the Company in accordance with a stipulated vesting schedule. Grantees are generally subject to a vesting schedule of no longer than five years, under which the grantee earns an entitlement to vest a certain percentage of his option grants at the end of each month or year of completed service. The share option awards shall expire no more than 10 years from their grant dates.

Share options containing both service conditions and performance conditions granted to each grantee under the share incentive plan shall become eligible for vesting upon the occurrence of their applicable performance conditions (including but not limited to the occurrence of an IPO, the completion of business and operational goals, etc.).

On August 15, 2020, pursuant to a board resolution, 184,692 share options that granted to a senior management was modified and the vesting period of such share options was shortened from 5 years to 4 years. Since the fair value of the modified award was lower than the fair value of the original award immediately before the modification, no incremental compensation cost was recognized for the modification during the year ended December 31, 2021.

On November 9, 2020, the Company passed a board resolution to waive the vesting schedules and conditions of 2,375,000 share options granted to certain management members. Pursuant to this board resolution, these management members exercised all related share options at the original exercise price per share ranging from US$1.83 to US$2.26. As a result, 2,375,000 ordinary shares were issued to these management members. These management members paid the exercise price by issuing recourse promissory notes in the total amount of US$5,197,650. The Company had the repurchase right to buy back such shares at the original exercise price if the grantees did not meet the original vesting conditions. The Company assessed and considered that in accordance with guidance set out in ASC 718-10-55-31, given such arrangement allows the shares received on exercise be returned to the Company if the original vesting conditions are not satisfied, there has been no substantial change to the vesting conditions and the Company shall continue to account for the share awards in accordance with their original terms. As of December 31, 2021, there were 1,585,000 shares unvested according to the original vesting conditions.

On January 16, 2021, the Company passed a board resolution whereby certain management members surrendered a total of 491,119 ordinary shares as repayment for their respective promissory notes issued in connection with the exercising of options granted to them. In the meantime, the Company further granted these management members the right to repurchase the surrendered shares by way of new option grants with an exercise price of US$13.85 per share. The fair values of these share options were US$7.85 per option, determined by using the binomial option valuation model. The share-based compensation expense related to these share options were recognized immediately upon grants.

Pursuant to the same board resolution, the 2021 Performance Incentive Plan (the “2021 Plan”) was also adopted, under which an aggregate of 2,994,000 ordinary shares shall be reserved for issuance, and the share limit will automatically increase on the first trading day in January of each year (commencing with 2022) by an amount equal to (1) 5% of the total number of the Company’s outstanding ordinary shares on December 31 of the prior year, or (2) such lesser number as determined by the board of directors. From March 12, 2021 to December 22, 2021, pursuant to the 2021 Plan, a total of 1,303,000 share options were granted to certain employees by 15 batches, with exercise price ranging from US$5.92 to US$17.56, respectively. In addition, 23,734 ordinary shares were issued to certain management personnel on March 16, 2021 pursuant to the 2021 Plan.

On January 7, 2022, the Company passed a board resolution, pursuant to which the vesting schedules and conditions of 2,060,308 share options granted to certain employees were modified. The share options vested (or to be vested) for each year (commencing from 2021) shall be equal to the lesser of (i) 25% of the total number of share options of each grantee (“Annual Cap”) and (ii) the number of shares as determined by the Compensation Committee based on the extent to which any performance milestones were achieved during that year (“Credited Shares”), plus any Credited Share of earlier years that have not previously vested due to the Annual Cap. In addition, the performance milestones applicable to the share options that remain outstanding were also modified. As a result of the modification, the Company recognized an incremental fair value of US$2,337,697.

From February 7, 2022 to December 27, 2022, pursuant to the 2021 Plan, a total of 2,640,598 share options were granted to certain employees, with exercise price ranging from US$0.80 to US$5.60, respectively. In addition, 99,999 ordinary shares were issued to certain management personnel on March 8, 2022 pursuant to the 2021 Plan.

As of December 31, 2021 and 2022, among all the share options granted to date, 2,483,808 and 4,776,906 share options contained both service conditions and performance conditions, respectively. All other share options granted contain only service conditions.


			Weighted‑
			Average	Weighted
		Weighted‑	Grant	Average
		Average	Date	Remaining	Aggregate
	Number of	Exercise	Fair	Contractual	Intrinsic
	Options	Price	Value	Term	Value
		US$ per	US$ per
		option	option	Years	US$
Outstanding at December 31, 2019	866,028	0.65	3.67	7.27	6,328,171
Granted	6,313,373	2.00	7.01	—	—
Exercised	(3,694,934)	1.93	6.55	—	—
Forfeited	(190,000)	1.70	6.91	—	—
Outstanding at December 31, 2020	3,294,467	1.75	6.65	8.78	33,410,968
Granted	1,894,119	12.31	8.39	—	—
Exercised	(233,958)	0.99	5.13	—	—
Forfeited	(145,550)	3.02	7.71	—	—
Outstanding at December 31, 2021	4,809,078	5.91	7.38	8.68	2,619,574
Granted	2,640,598	3.28	2.13	—	—
Exercised	(197,975)	2.08	6.95	—	—
Forfeited	(964,789)	6.75	7.57	—	—
Outstanding at December 31, 2022	6,286,912	4.80	5.16	8.44	94,990
Vested and expected to vest at December 31, 2022	6,286,912	4.80	5.16	8.44	94,990
Exercisable at December 31, 2021	1,486,318	5.87	7.05	8.20	874,180
Exercisable at December 31, 2022	2,070,533	6.35	6.87	7.62	55,880

The aggregate intrinsic value in the table above represents the difference between the exercise price of the awards and the fair value of the underlying ordinary shares at each reporting date, for those awards that had exercise price below the estimated fair value of the relevant ordinary shares.

The aggregate fair value of the equity awards vested during the years ended December 31, 2020, 2021, and 2022 was US$8,430,085, US$13,833,856 and US$11,929,903, respectively. As of December 31, 2022, the total unrecognized employee share-based compensation expense was US$23,635,444, all of which may be adjusted for actual forfeitures occurring in the future. Total unrecognized compensation cost will be recognized over a weighted-average period of 2.20 years as of December 31, 2022.

Fair value of share options

The fair value of share options was determined using the binomial option valuation model, with the assistance from an independent third-party appraiser. The binomial model requires the input of highly subjective assumptions, including the expected volatility, the exercise multiple, the risk-free rate and the dividend yield. For expected volatility, the Group has made reference to historical volatility of several comparable companies in the same industry. The exercise multiple was estimated as the average ratio of the stock price to the exercise price of when employees would decide to voluntarily exercise their vested share options. The risk-free rate for periods within the contractual life of the share options is based on the market yield of U.S. Treasury Bonds in effect at the time of grant. The dividend yield is based on the expected dividend policy over the contractual life of the share options.

The assumptions used to estimate the fair value of the share options granted were as follows:


	For the years ended
	December 31,
	2020	2021	2022
Risk‑free interest rate	0.68% - 0.83%	1.11% - 1.67%	1.92% - 4.25%
Dividend yield	0%	0%	0%
Expected volatility range	72.3% - 73.4%	73.1% - 75.5%	74.2% - 74.9%
Exercise multiple	2.2 - 2.8	2.2 - 2.8	2.2 - 2.8
Contractual life	10 years	10 years	10 years

Total share-based compensation expenses recognized for the years ended December 31, 2020, 2021 and 2022 were as follows:


	For the years ended December 31,
	2020	2021	2022
	US$	US$	US$
Research and development expenses	6,472,083	13,582,746	7,227,298
Administrative expenses	3,657,458	5,096,912	3,292,984
Total share‑based compensation expenses	10,129,541	18,679,658	10,520,282

COLLABORATION ARRANGEMENTS

12 Months Ended

Dec. 31, 2022

COLLABORATION ARRANGEMENTS

COLLABORATION ARRANGEMENTS

10. COLLABORATION ARRANGEMENTS

Guilin Sanjin Pharmaceutical Co., Ltd. License Agreement

In December 2018, the Group entered into (i) a collaboration agreement (the “Sanjin Greater China Agreement”) that covers Greater China with Guilin Sanjin Pharmaceutical Co., Ltd. (“Sanjin”) and certain of its subsidiaries (collectively, “Sanjin Parties”) and (ii) a collaboration agreement (the “Sanjin ROW Agreement,” together with the Sanjin Greater China Agreement, the “2018 Sanjin Agreements”) that covers the regions other than Greater China with Sanjin. Pursuant to the Sanjin Greater China Agreement, the Group licensed the Chinese intellectual property directly related to a monospecific antibody molecule that binds to the PD-L1 target (the “PD-L1 Project”), including patent rights, patent application rights and technologies based on the core sequence of the molecule, to Sanjin Parties. Sanjin Parties will own all the Chinese intellectual property developed in the exercise of Sanjin Parties’ rights under the agreement, including but not limited to improvements (including combination products), clinical trials, regulatory filings, and commercialization rights relating thereto. The Group also granted Sanjin Parties a royalty-free license to use our other existing intellectual property and improvements thereto which are related to the PD-L1 Project for the purposes of exploiting its rights and performing its obligations under the agreement. Sanjin Parties will enjoy all the economic benefits deriving from the PD-L1 Project in Greater China, including but not limited to patent transfer fee, licensing fee, sales revenue and sales commission, etc. Sanjin Parties will pay the Group (i) single-digit percentage of net sales of the products that use the licensed antibody after such products enter the market and (ii) a low to mid-low double-digit percentage of the profits resulting from any transfer of the license to any third parties depending on the timing of the transfer relative to the development stage of the product. The Group also received RMB10,000,000 (equivalent to approximately US$1,511,168) upfront fee upon the effectiveness of the agreement from Sanjin Parties, which was recognized as revenue in 2018. No revenue related to this agreement has been recognized in any of the years presented in the accompanying financial statements

Pursuant to the Sanjin ROW Agreement, the Group granted Sanjin a royalty-free license to use all intellectual property relating to (i) the collaboration under the agreement that the Group controlled before the Group entered into the agreement or acquired independently of the agreement and (ii) improvements thereto for the purposes of exploiting its rights and performing its obligations under the agreement. Any intellectual property generated independently by a party under the agreement will be solely owned by that party who generated such intellectual property, and any intellectual property generated from cooperation between the Group and Sanjin’s affiliates in connection with the collaboration will be jointly owned. The Group retain the ownership of patent rights of key intellectual property pertaining to PD-L1 outside of the Greater China. In addition, all the results obtained by Sanjin relating to the research and development of any new antibody developed under the agreement will be owned by Sanjin. The Group retain a majority of the economic benefits derived from the Sanjin ROW Agreement, including but not limited to any patent transfer fee, licensing fee and gains realized under such transfer. In case the Group intend to transfer to a third party our share of economic interests in any country outside of Greater China, the Group must notify Sanjin and Sanjin will receive a right of first refusal if it pays the Group a deposit equal to a low double-digit percentage of the consideration that the Group expect to receive from such third party. If Sanjin waives the right of first refusal, the Group can proceed with the transfer, provided that the final transaction price with the third party is not lower than the amount of the offering price that was included in the Group’s notice to Sanjin.

The Group agreed not to (i) independently develop any monospecific antibodies that bind to the PD-L1 target or (ii) grant any rights associated with such antibodies to any third parties during the three-year period from the effective date of the agreement. The exclusivity obligation does not prevent the Group from (i) developing or granting any licenses to third parties for intellectual property that covers bispecific antibodies, ADCs, diagnostic antibodies, nano-particles and masked antibody against PD-L1 target and (ii) continuing to provide antibody screening service that were commenced before the execution of the Sanjin Greater China Agreement and either party has the independent right to conduct combination therapy studies outside of the Greater China. Either non-breaching party may terminate the 2018 Sanjin Agreements if the other party’s ability to comply with its respective obligations under the agreements is negatively affected by contingencies such as failure to maintain operation or changes in core project management and the other party fails to take effective remedial measures. Each agreement automatically terminates upon the termination of the other agreement. Upon the rescission or termination, Sanjin Parties will return to the Group all the intellectual property, documents and data provided by the Group under the 2018 Sanjin Agreements.

In the event that the failure of the development of the product candidate solely arises from the Group’s research and development basis specified under this agreement, Sanjin has the right to claim back all the payment made to the Group. The Group considers the possibility of occurrence of such event is remote.

Dragon Boat Biopharmaceutical (Shanghai) Limited License Agreement

In May 2019, the Group entered into (i) a collaboration agreement that covers Greater China (the “Dragon Boat Greater China Agreement”) and (ii) a collaboration agreement that covers the regions other than Greater China (the “Dragon Boat ROW Agreement,” together with the Dragon Boat Greater China Agreement, the “2019 Dragon Boat Agreements”), with Dragon Boat Biopharmaceutical (Shanghai) Limited (“Dragon Boat”), a subsidiary of Sanjin. Pursuant to the Dragon Boat Greater China Agreement, the Group will license the Chinese intellectual property directly related to a certain monospecific antibody molecule that binds to a specified target (the “Specified Project”), including the patent rights, patent application rights and technologies based on the core sequence of the molecule, to Dragon Boat. Dragon Boat will own all the Chinese intellectual property developed in the exercise of Dragon Boat’s rights under the agreement, including but not limited to improvements (including combination products), clinical trials, regulatory filings, and commercialization rights relating thereto. The Group also granted Dragon Boat a royalty-free license to use our other existing intellectual property and improvements thereto which are related to the Specified Project for the purposes of exploiting its rights and performing its obligations under the agreement. Dragon Boat will enjoy all the economic benefits deriving from the Specified Project in Greater China, including but not limited to patent transfer fee, licensing fee, sales revenue and sales commission, etc. and will pay the Group (i) certain high-six figure dollar milestone payments upon the achievement of certain milestones (including milestones of launch of pre-clinical safety evaluation animal test, obtaining Investigational New Drug (“IND”) approval in PRC and completion of clinical phase I test in PRC) and (ii) a single-digit percentage of net sales of the products that use the licensed antibody after such products enter the market.

Pursuant to the Dragon Boat ROW Agreement, the Group granted Dragon Boat a royalty-free license to use all intellectual property relating to (i) the collaboration under the agreement that the Group controlled before the Group entered into the agreement or acquired independently of the agreement and (ii) improvements thereto for the purposes of exploiting its rights and performing its obligations under the agreement. Any intellectual property generated independently by a party under the agreement will be solely owned by that party who generated such intellectual property, and any intellectual property generated from cooperation between the Group and Dragon Boat in connection with the collaboration will be jointly owned. The Group retain the ownership of patent rights of key intellectual property pertaining to the specified target outside of the Greater China. In addition, all the results obtained by Dragon Boat relating to the research and development of any new antibody developed under the agreement will be owned by Dragon Boat. The Group retains a majority of the economic benefits derived from the Dragon Boat ROW Agreement, including but not limited to any patent transfer fee, licensing fee and gains realized under such transfer. In case the Group intend to transfer to a third party our share of economic interests in any country outside of Greater China, the Group must notify Dragon Boat and Dragon Boat will receive a right of first refusal if it pays the Group a deposit equal to a low double-digit percentage of the consideration that the Group expects to receive from such third party. If Dragon Boat waives the right of first refusal, the Group can proceed with the transfer, provided that the final transaction price with the third party is not lower than the amount of the offering price that was included in our notice to Dragon Boat.

Under the 2019 Dragon Boat Agreements, the Group agreed not to (i) independently develop any monospecific antibodies that bind to the specified target or (ii) grant any rights associated with such antibodies to any third parties during the three-year period from the effective date of the agreements. The exclusivity obligation does not prevent the Group from (i) developing or granting any licenses to third parties for intellectual property that covers bispecific antibodies, ADCs, diagnostic antibodies, nano-particles and masked antibody against the specific target and (ii) continuing to provide antibody screening service that were commenced before the execution of the Dragon Boat Greater China Agreement and either party has the independent right to conduct combination therapy studies outside of the Greater China. Either nonbreaching party may terminate the 2019 Dragon Boat Agreements if the other party’s ability to comply with its obligations under the agreements is negatively affected by contingencies such as failure to maintain operation or changes in core project management and the other party fails to take effective remedial measures. Each agreement automatically terminates upon the termination of the other agreement. Upon the rescission or termination, Dragon Boat will return to the Group all the intellectual property, documents and data provided by the Group under the 2019 Dragon Boat Agreements.

In the event that the failure of the development of the product candidate solely arises from the Group’s research and development basis specified under this agreement, Dragon Boat has the right to claim back all the payment made to the Group. The risk of failure is considered remote upon recognition of revenue.

For the year ended December 31, 2019, no revenue was recognized for this agreement since the licensed product has not been transferred to Dragon Boat.

As of December 31, 2020, upfront fee of RMB4,000,000 (equivalent to approximately US$573,378) that was received by the Group was recorded as contract liabilities in the consolidated balance sheets, as the performance obligation had not been satisfied by the Group and no revenue was recognized.

During the year ended December 31, 2021, milestone fee of RMB4,000,000 (equivalent to approximately US$620,011) was received related to the launch of pre-clinical safety evaluation animal test and the receipt of IND approval in PRC. For the year ended December 31, 2021, a total of RMB8,000,000 (equivalent to approximately US$1,240,022), including the aforementioned upfront fee and milestone fee were recognized as licensing revenue in the consolidated statement of comprehensive loss as the performance obligation was satisfied by the Group and certain milestone events were achieved.

No additional revenue was recognized for the year ended December 31, 2022.

ADC Therapeutics SA License and Collaboration Agreements

In April 2019, the Group entered into a material transfer and collaboration agreement (the “ADCT Collaboration Agreement”) and a license agreement (the “ADCT License Agreement”) with ADC Therapeutics SA (“ADC Therapeutics”). These two agreements are combined as a single contract as the agreements were negotiated as a package with a single commercial objective.

ADCT Collaboration Agreement

Pursuant to the ADCT Collaboration Agreement, the Group agreed to generate masked antibodies with respect to up to two exclusive targets selected by ADC Therapeutics. Upon our delivery of certain initial results, ADC Therapeutics has the option to license the Group’s technology with respect to one or both targets as further detailed below. ADC Therapeutics has not yet exercised such options as of December 31, 2022.

Under the ADCT Collaboration Agreement, the Group is eligible to receive up to a low-seven-figure dollar amount in consideration for the Group’s exclusivity obligations, upon achievement of certain development milestones (including milestones of delivery of certain amino acid sequences and successful outcome of the first in-vivo study) and upon ADC Therapeutics’ election to proceed with development for the two elected targets. Apart from performance obligation to deliver the amino acid sequences of the corresponding masking peptides, the Group is not required to perform any additional research and development services. ADC Therapeutics has the right to terminate the ADCT Collaboration Agreement at any time and for any reason in its entirety or on a target-by-target basis upon thirty days’ prior written notice to the Group. Either party may terminate the ADCT Collaboration Agreement, in its entirety or on a target-by-target basis, upon the other party’s uncured material breach of the agreement or the other party’s insolvency-related events.

The Group also granted ADC Therapeutics an exclusive target reservation right for one year from the commencement of the agreement and an option to renewal for another year with a consideration of low-six-figure dollar amount.

ADCT License Agreement

Subject to the exercise of the options contained in the ADCT Collaboration Agreement, the Group has granted ADC Therapeutics, with respect to each elected target, an exclusive, worldwide, perpetual and irrevocable (subject only to the termination provisions) license (with the right to grant sublicenses) to develop, make, use, commercialize and import the antibody drug conjugates that comprise masked antibodies generated by the Group under these programs.

Under the ADCT License Agreement, if ADC Therapeutics exercises both of its options granted thereunder, the Group could be eligible to receive up to a low-nine-figure dollar amount in development and regulatory milestone payments upon the achievement of certain milestones (including milestones of successful completion of Good Laboratory Practice Toxicology studies, launch of clinical trials and start of commercial sales in difference countries and etc.) and up to a mid-eight-figure dollar amount in sales milestone payments, in addition to mid-single-digit percentage net sales-based tiered royalties on products licensed under the ADCT License Agreement, subject to certain reductions. Royalties, if any, will be payable on a country-by-country and product-by-product basis, until the earlier of (i) the tenth anniversary of the first commercial sale of such product or (ii) the expiration of the last-to-expire patent licensed under the agreement in such country, unless earlier terminated by the parties, following which any licenses granted to ADC Therapeutics under the ADCT License Agreement shall become fully paid up, perpetual and irrevocable.

ADC Therapeutics has the right to terminate the ADCT License Agreement before the expiration of the royalty term on a product-by-product basis or in its entirety (i) for any reason or no reason upon thirty days’ written notice to the Group, or (ii) if ADC Therapeutics chooses to discontinue the development or sale of the applicable licensed product worldwide. Each party has certain rights to terminate the ADCT License Agreement with prior written notice upon the other party’s uncured material breach or insolvency.

For the year ended December 31, 2020, the Group recognized US$225,000 of licensing revenue upon delivery of such results. For the year ended December 31, 2020, the Group recognized US$100,000 as other income due to the expiration of exclusive target reservation right, which is not related to the Group’s major operation activity.

For the year ended December 31, 2021, the Group recognized US$225,000 of licensing revenue upon delivery of additional research results.

For the year ended December 31, 2022, the Group did not recognize additional revenue associated with the agreements.

ADCT Material Transfer and Option Agreement

In August 2022, the Group entered into a material transfer and option agreement (the "ADCT Material Transfer and Option Agreement") with ADCT. Under the agreement, Adagene agreed to provide antibodies or antibody sequences to ADCT to conduct further development for a non-refundable fee of US$300,000. ADCT has an exclusive option to negotiate a separate license agreement with the Group, however, there is no requirement for either party to enter into such a license agreement.

For the year ended December 31, 2022, the Group recognized revenue of US$300,000, which was received in October 2022, upon delivery of the sequences.

Exelixis, Inc. Agreements

In February 2021, the Group entered into a collaboration and license agreement (the “Exelixis Agreement”) with Exelixis, Inc. (“Exelixis”), pursuant to which the Group agreed to generate masked antibodies with its SAFEbody technology against an initial target selected and a second target to be selected by Exelixis. The Group will generate masked antibodies in the form of alternative compounds in accordance with the program plan for each target at its own cost and deliver the related data packages to Exelixis. Exelixis will select lead compounds (the “Lead Compounds”) to further develop, obtain regulatory approval and commercialize product(s) for each target (the “Products under the Exelixis Agreement”). Under the Exelixis Agreement, the Group will also grant Exelixis an exclusive, worldwide, sublicensable license (the “Adagene License”) upon delivery of the data package to research, develop, make, have made, sell, offer for sale, import and commercialize products containing the masked antibodies to be generated by the Group with respect to both targets. Exelixis will own the inventions relating to the Lead Compounds arising in connection with the Exelixis Agreement.

The Exelixis Agreement will remain effective until the expiration of the defined royalty terms of the Products under the Exelixis Agreement, unless terminated by either party. Exelixis may terminate the Exelixis Agreement for any or no reason, in its entirety or on a target-by-target basis. Any payment received by the Group before the termination shall be non-refundable.

Under the Exelixis Agreement, Exelixis agreed to pay the Group an upfront non-refundable fee of US$11,000,000. For each target, the Group will be eligible to receive up to US$127,500,000 of milestone payments conditioned upon achieving certain development and regulatory approval milestones, and up to $262,500,000 of sales-based milestone payments. In addition, the Group is also entitled to royalties of mid-single-digit percentage in respect of the aggregate annual net sales of the products developed under the Exelixis Agreement worldwide, subject to certain reductions.

In April 2022, the Group entered in a letter agreement (the "Exelixis Letter Agreement") in reference to the Exelixis Agreement with Exelixis for expanded collaboration in SAFEbody discovery. Under the Exelixis Letter Agreement, the Group will generate additional masked antibodies against the target selected by Exelixis per the Exelixis Agreement. Exelixis agreed to pay the Group an additional upfront non-refundable fee of US$1,100,000.

The Group determined that generating masked antibodies with its SAFEbody technology is reflective of a vendor-customer relationship and therefore within the scope of ASC 606. Under the Exelixis Agreement, the delivery of data packages for each target, along with the Adagene License used to develop the related compounds, represents one performance obligation, as they are not distinct from each other. Transaction price is allocated to each one of the two performance obligations using the relative standalone selling price method. The Group records revenue at a point in time, when the data packages for each target were delivered to Exelixis. Considering that the development, regulatory and sales-based milestone payments and the royalties are constrained, the transaction price shall initially only include upfront payment and the milestone payments that are considered probable. Subsequently, once the uncertainty associated with the milestone payments is resolved, the milestone payments shall be included in the total transaction price when it is no longer probable that a significant reversal of cumulative revenue would occur in future periods. The sales-based royalty and sales-based milestones promised in exchange for the Adagene License granted are recognized when (or as) the later of (1) the subsequent sale or usage occurs, or (2) the performance obligation to which some or all of the sales-based royalty or sales-based milestones being allocated has been satisfied (or partially satisfied).

For the year ended December 31, 2021, the Group received US$11,000,000 upfront payment and recorded accounts receivable of US$3,000,000 milestone payment, which corresponds to the successful nomination of lead SAFEbody candidates for the initial target under the Exelixis Agreement. The milestone payment was subsequently received in January 2022. For the year ended December 31, 2021, US$8,500,000 was recognized as revenue upon delivery of data packages for the initial target and achievement of the milestone event.

For the year ended December 31, 2022, the Group received US$1,100,000 upfront payment under the Exelixis Letter Agreement. No additional revenue was recognized as relevant performance obligation has yet to be fully satisfied under either the Exelixis Agreement or the Exelixis Letter Agreement.

Sanofi Agreement

In March 2022, the Group entered into a collaboration and license agreement (the “Sanofi Agreement”) with Genzyme Corporation, a wholly-owned subsidiary of Sanofi (“Sanofi”), pursuant to which the Group agreed to perform early-stage research activities to develop masked versions of Sanofi candidate antibodies (each a “Target”, and together, “Targets”), using Adagene’s SAFEbody technology for development and commercialization by Sanofi. Sanofi has the ability to advance two initial Targets in the collaboration, followed by an option for two additional Targets. The Group will generate masked antibodies in the form of customized compounds and complete the compound research activities in accordance with the program plan for each Target at its own cost and deliver the compounds and related data packages to Sanofi. Sanofi is solely responsible for later stage research and all clinical, product development and commercialization activities. Under the Sanofi Agreement, the Group granted Sanofi an exclusive, worldwide, sublicensable license to research, develop, use, make, have made, sell, offer for sale, import and commercialize products containing the masked antibodies to be generated by the Group.

The Sanofi Agreement will remain effective until the expiration of the defined royalty on a product-by-product and country-by-country basis, unless terminated earlier with cause or by mutual agreements of both parties. Sanofi may terminate the Sanofi Agreement without cause, in its entirety, or on a Target-by-Target or country-by-country basis.

Under the Sanofi Agreement, Sanofi agreed to pay the Group an upfront non-refundable fee of US$17,500,000 in consideration of the license granted and the early-stage research activities to generate the compounds. Sanofi is obligated to pay an additional fee if Sanofi exercises the option for additional Targets. For each Target, the Group will be eligible to receive up to US$173,500,000 of milestone payments conditioned upon achieving certain development and regulatory approval milestones, and up to $450,000,000 of sales-based milestone payments. In addition, the Group is also entitled to royalties of mid-single-digit percentage in respect of the aggregate annual net sales of the products developed under the Sanofi Agreement worldwide, subject to certain reductions.

The Group then determined that this collaboration is more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. Under the Sanofi Agreement, the performance of early-stage research activities to develop compounds for each Target, along with the grant of the license, represents one performance obligation, as they are not distinct from each other. Transaction price is allocated to each one of the two performance obligations based on the relative standalone selling price. Since the early-stage research activities does not generate an asset for alternative use and the Group has an enforceable right to the upfront payment, the Group records revenue over time using labor hour as the input to assess the satisfaction of the performance obligations. Considering that the development, regulatory and sales-based milestone payments and the royalties are constrained, the transaction price shall initially only include upfront payment and the milestone payments that are considered probable. Subsequently, once the uncertainty associated with the milestone payments is resolved, the milestone payments shall be included in the total transaction price when it is no longer probable that a significant reversal of cumulative revenue would occur in future periods. The sales-based royalty and sales-based milestones promised in exchange for the license granted are recognized when (or as) the later of (1) the subsequent sale or usage occurs, or (2) the performance obligation to which some or all of the sales-based royalty or sales-based milestones being allocated has been satisfied (or partially satisfied).

For the year ended December 31, 2022, the Group received US$17,500,000 upfront payment under the Sanofi Agreement. For the year ended December 31, 2022, US$8,992,724 was recognized as revenue over time using the input method.

INCOME TAX EXPENSE

12 Months Ended

Dec. 31, 2022

INCOME TAX EXPENSE

INCOME TAX EXPENSE

11. INCOME TAX EXPENSE

PRC

Effective from January 1, 2008, the PRC’s statutory, Enterprise Income Tax (“EIT”) rate is 25%. In accordance with the implementation rules of EIT Law, a qualified “Technology Advanced Service Enterprises” (“TASE”) is eligible for a preferential tax rate of 15%. The TASE certificate is effective for three years. An entity must file required supporting documents with the tax authority and ensure fulfillment of the relevant TASE criteria before using the preferential rate. An entity could apply for the TASE certificate every year. Dividends by PRC entities, to non-PRC resident enterprises shall be subject to 10% EIT, namely withholding tax, unless the respective non-PRC resident enterprise’s jurisdiction of incorporation has a tax treaty or arrangements with China that provides for a reduced withholding tax rate or an exemption from withholding tax.

Adagene (Suzhou) Limited was first recognized as a qualified TASE in March 2015 and renewed in December 2018 and November 2021. Adagene (Suzhou) Limited was authorized to enjoy the preferential tax rate of 15% from 2015 to at least 2023.

Cayman Islands

Adagene Inc. is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands Adagene Inc. is not subject to tax on income or capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.

Hong Kong

Adagene (Hong Kong) Limited is incorporated in Hong Kong. Companies registered in Hong Kong are subject to Hong Kong profits tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with the relevant Hong Kong tax laws. The applicable tax rate in Hong Kong is 16.5%. For the years ended December 31, 2020, 2021 and 2022, Adagene (Hong Kong) Limited did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earnings in Hong Kong for any of the periods presented. Under the Hong Kong tax law, Adagene (Hong Kong) Limited is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

Australia

Adagene Australia Pty Ltd. is incorporated in Australia. Companies registered in Australia are subject to Australia profits tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with the relevant Australia tax laws. The applicable tax rate in Australia is 30%. Adagene Australia Pty Ltd. has no taxable income for all periods presented, therefore, no provision for income taxes is required. Dividends payable by an Australian entity, to non-Australian resident enterprises shall be subject to 30% withholding tax, unless the respective non-Australian resident enterprise’s jurisdiction of incorporation has a tax treaty or arrangements with Australia that provides for a reduced withholding tax rate or an exemption from withholding tax.

United States

Adagene Incorporated is incorporated in U.S. and is subject to U.S. federal corporate income tax at a rate of 21%. Adagene Incorporated is also subject to state income tax in California of 8.84%. Dividends payable by an U.S. entity, to non-U.S. resident enterprises shall be subject to 30% withholding tax, unless the respective non-U.S. resident enterprise’s jurisdiction of incorporation has a tax treaty or arrangements with U.S. that provides for a reduced withholding tax rate or an exemption from withholding tax.

Switzerland

Adagene AG is incorporated in Switzerland and is subject to federal corporate income tax at a rate of 8.5%. Adagene AG is also subject to cantonal income tax of 6.5% as well as capital tax of 0.1% in the Canton of Basel subject to certain tax benefits and relief. Dividends payable by a Swiss entity, to non-Swiss resident enterprises shall be subject to 35% withholding tax, unless the respective non-Swiss resident enterprise’s jurisdiction of incorporation has a tax treaty or arrangements with Switzerland that provides for a reduced withholding tax rate or an exemption from withholding tax.

Income tax expense (benefit) of the Group for the years ended December 31, 2020, 2021 and 2022 were composed of the following current and deferred amounts:


	For the years ended December 31,
	2020	2021	2022
	US$	US$	US$
Current:
U.S.
Federal	—	1,290,009	672,064
State and local	—	367,441	(168,846)
Total current	—	1,657,450	503,218
Deferred:
U.S.
Federal	—	96,804	(96,804)
State and local	—	(52,641)	52,641
Total deferred	—	44,163	(44,163)
Income tax expense	—	1,701,613	459,055

Reconciliation between the income tax expense computed by applying the statutory tax rate to loss before income tax and the actual provision for income tax was as follows:


	For the years ended December 31,
	2020		2021		2022
	US$		US$		US$
Loss before income tax	(42,397,279)		(71,476,322)		(79,512,792)
PRC statutory income tax rate	25	%	25	%	25	%
Income tax credit computed at PRC statutory income tax rate	(10,599,320)		(17,869,081)		(19,878,198)
Impact of PRC preferential income tax rate as qualified TASE	4,239,728		7,147,633		7,951,279
Difference in income tax rates of overseas entities	5,286,487		10,549,985		10,560,029
Research and development super-deduction^(a)	(718,979)		(569,016)		(1,724,740)
Research and development tax credits	—		—		(569,575)
Non-deductible expenses	1,238		1,054		3,695
Foreign derived intangible income deduction	—		—		(487,183)
Changes in valuation allowance	1,790,846		2,277,418		4,517,358
State tax	—		291,500		76,127
Others	—		(127,880)		10,263
Income tax expense	—		1,701,613		459,055

Note (a): Due to the impacts of research and development super-deduction, the Group’s subsidiary, Adagene (Suzhou) Limited, did not have any income taxes for the years ended December 31, 2020, 2021, and 2022.

Deferred tax assets and liabilities

Deferred taxes were measured using the enacted tax rates for the periods in which the temporary differences are expected to be reversed. The tax effects of temporary differences that give rise to the deferred tax balances as of December 31, 2021 and 2022 were as follows:


	As of December 31,
	2021	2022
	US$	US$
Deferred tax assets:
Net operating loss carry forward	4,949,000	8,217,976
Tax credit carry forward	—	391,843
Capitalized research and development expenses	—	756,197
Capitalized inventory	95,589	94,954
Unrealized foreign exchange gain/losses	39,166	116,238
Accrued expenses	—	29,702
Amortization of right-of-use assets and interest of lease liabilities	—	546
Depreciation and amortization of property, equipment and software	79	—
Gross deferred tax assets	5,083,834	9,607,456
Less: valuation allowance	(5,007,139)	(9,524,497)
Deferred tax assets	76,695	82,959


Deferred tax liabilities:
Depreciation and amortization of property, equipment and software	(120,858)	(82,959)
Deferred tax liabilities	(120,858)	(82,959)
Total deferred tax liabilities, net	(44,163)	—

Movement of the valuation allowance was as follows:


	2021	2022
	US$	US$
Balance as of January 1	2,729,721	5,007,139
Addition	2,277,418	4,517,358
Balance as of December 31	5,007,139	9,524,497

A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized in the foreseeable future. In making such determination, the Group evaluates a variety of positive and negative factors including the Group’s operating history, accumulated deficit, the existence of taxable temporary differences and reversal periods.

The Group has incurred net accumulated operating losses for income tax purposes since its inception. As of December 31, 2022, the Group had net operating losses for income tax purpose of approximately US$50,742,841. The net operating losses were primarily comprised of: US$17,886,069 from an entity in PRC which expires in years 2028 through 2032; US$8,272,007 derived from an entity Switzerland which expires in years 2027 through 2029; US$5,445,071 derived from an entity in Hong Kong that have an indefinite carryforward; US$7,511,343 derived from an entity in Australia that have an indefinite carryforward subject to meeting certain criteria; US$10,807,828 derived from an entity in the United States which expires beginning year 2038; and, US$820,523 derived from entities in Singapore. The Group believes that it is more likely than not that these net accumulated operating losses will not be utilized in the near future. Therefore, the Group has provided full valuation allowances for the deferred tax assets for all subsidiaries as of December 31, 2022.

The Group evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2021 and 2022, the Group did not have any significant unrecognized uncertain tax positions. The Group does not anticipate that the amount of unrecognized tax benefits will significantly change within the next 12 months.

The Group conducts business in a number of tax jurisdictions and, as such, is required to file income tax returns in multiple jurisdictions globally. As of December 31, 2022, PRC tax matters are open to examination for the years 2020 through 2022, U.S. federal and state tax matters are open to examination for the years 2019 through 2022, and Australia tax matters are open to examination for the years 2019 through 2022.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 21
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SAB Topic 11.C)
-URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 17
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SAB TOPIC 6.I.5.Q1)
-URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 14
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 270
-Section 50
-Paragraph 1
-URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-URI https://asc.fasb.org/topic&trid=2144680

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 30
-Section 50
-Paragraph 2
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(h)(2))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

+ Details

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

Principles of Consolidation

Use of estimates

Foreign currency translation

Cash and cash equivalents

Accounts receivable and allowance for doubtful accounts

Fair value measurements

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.

The Group did not transfer any assets or liabilities in or out of Level 3 during the years ended December 31, 2021 or 2022.

The Group had no financial assets and liabilities measured and recorded at fair value on a nonrecurring basis as of December 31, 2021 and 2022.

Property, equipment and software


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

Impairment of long-lived assets

No impairment loss was recorded for the years ended December 31, 2020, 2021 and 2022.

Segment reporting

Revenue recognition

Contract assets and contract liabilities

Research and development expenses

Government subsidies

Government subsidies of US$0.8 million, US$1.4 million and US$2.1 million were received and recognized as other income during the years ended December 31, 2020, 2021 and 2022, respectively.

Leases

Prior to the adoption of ASC 842, Leases ("ASC 842") on January 1, 2022:

Upon and hereafter the adoption of ASC 842 on January 1, 2022:

Comprehensive income (loss)

Income taxes

Borrowings

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.

Net loss per share

Employee defined contribution plan

Concentration of risks

Concentration of credit risk

Concentration of suppliers

Business and economic risk

Foreign currency exchange rate risk

Recently issued accounting pronouncements

SHARE-BASED COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2022

SHARE-BASED COMPENSATION

Summary of stock option activity


			Weighted‑
			Average	Weighted
		Weighted‑	Grant	Average
		Average	Date	Remaining	Aggregate
	Number of	Exercise	Fair	Contractual	Intrinsic
	Options	Price	Value	Term	Value
		US$ per	US$ per
		option	option	Years	US$
Outstanding at December 31, 2019	866,028	0.65	3.67	7.27	6,328,171
Granted	6,313,373	2.00	7.01	—	—
Exercised	(3,694,934)	1.93	6.55	—	—
Forfeited	(190,000)	1.70	6.91	—	—
Outstanding at December 31, 2020	3,294,467	1.75	6.65	8.78	33,410,968
Granted	1,894,119	12.31	8.39	—	—
Exercised	(233,958)	0.99	5.13	—	—
Forfeited	(145,550)	3.02	7.71	—	—
Outstanding at December 31, 2021	4,809,078	5.91	7.38	8.68	2,619,574
Granted	2,640,598	3.28	2.13	—	—
Exercised	(197,975)	2.08	6.95	—	—
Forfeited	(964,789)	6.75	7.57	—	—
Outstanding at December 31, 2022	6,286,912	4.80	5.16	8.44	94,990
Vested and expected to vest at December 31, 2022	6,286,912	4.80	5.16	8.44	94,990
Exercisable at December 31, 2021	1,486,318	5.87	7.05	8.20	874,180
Exercisable at December 31, 2022	2,070,533	6.35	6.87	7.62	55,880

Summary of assumptions used to estimate the fair value of the share options granted


	For the years ended
	December 31,
	2020	2021	2022
Risk‑free interest rate	0.68% - 0.83%	1.11% - 1.67%	1.92% - 4.25%
Dividend yield	0%	0%	0%
Expected volatility range	72.3% - 73.4%	73.1% - 75.5%	74.2% - 74.9%
Exercise multiple	2.2 - 2.8	2.2 - 2.8	2.2 - 2.8
Contractual life	10 years	10 years	10 years

Summary of total share based compensation expenses recognized


	For the years ended December 31,
	2020	2021	2022
	US$	US$	US$
Research and development expenses	6,472,083	13,582,746	7,227,298
Administrative expenses	3,657,458	5,096,912	3,292,984
Total share‑based compensation expenses	10,129,541	18,679,658	10,520,282

INCOME TAX EXPENSE (Tables)

12 Months Ended

Dec. 31, 2022

INCOME TAX EXPENSE

Schedule of components of income tax expense


	For the years ended December 31,
	2020	2021	2022
	US$	US$	US$
Current:
U.S.
Federal	—	1,290,009	672,064
State and local	—	367,441	(168,846)
Total current	—	1,657,450	503,218
Deferred:
U.S.
Federal	—	96,804	(96,804)
State and local	—	(52,641)	52,641
Total deferred	—	44,163	(44,163)
Income tax expense	—	1,701,613	459,055

Schedule of reconciliation between the income tax expense and the actual provision


	For the years ended December 31,
	2020		2021		2022
	US$		US$		US$
Loss before income tax	(42,397,279)		(71,476,322)		(79,512,792)
PRC statutory income tax rate	25	%	25	%	25	%
Income tax credit computed at PRC statutory income tax rate	(10,599,320)		(17,869,081)		(19,878,198)
Impact of PRC preferential income tax rate as qualified TASE	4,239,728		7,147,633		7,951,279
Difference in income tax rates of overseas entities	5,286,487		10,549,985		10,560,029
Research and development super-deduction^(a)	(718,979)		(569,016)		(1,724,740)
Research and development tax credits	—		—		(569,575)
Non-deductible expenses	1,238		1,054		3,695
Foreign derived intangible income deduction	—		—		(487,183)
Changes in valuation allowance	1,790,846		2,277,418		4,517,358
State tax	—		291,500		76,127
Others	—		(127,880)		10,263
Income tax expense	—		1,701,613		459,055

Schedule of tax effects of temporary differences that give rise to the deferred tax balances


	As of December 31,
	2021	2022
	US$	US$
Deferred tax assets:
Net operating loss carry forward	4,949,000	8,217,976
Tax credit carry forward	—	391,843
Capitalized research and development expenses	—	756,197
Capitalized inventory	95,589	94,954
Unrealized foreign exchange gain/losses	39,166	116,238
Accrued expenses	—	29,702
Amortization of right-of-use assets and interest of lease liabilities	—	546
Depreciation and amortization of property, equipment and software	79	—
Gross deferred tax assets	5,083,834	9,607,456
Less: valuation allowance	(5,007,139)	(9,524,497)
Deferred tax assets	76,695	82,959


Deferred tax liabilities:
Depreciation and amortization of property, equipment and software	(120,858)	(82,959)
Deferred tax liabilities	(120,858)	(82,959)
Total deferred tax liabilities, net	(44,163)	—

Schedule of movement of the valuation allowance


	2021	2022
	US$	US$
Balance as of January 1	2,729,721	5,007,139
Addition	2,277,418	4,517,358
Balance as of December 31	5,007,139	9,524,497

CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS - Preferred Shares (Details)	1 Months Ended			4 Months Ended	6 Months Ended
	Dec. 31, 2019 USD ($) $ / shares shares	Feb. 28, 2018 USD ($) item $ / shares	Nov. 30, 2014 USD ($) $ / shares shares	May 31, 2018 USD ($) $ / shares shares	Nov. 30, 2019 USD ($) $ / shares shares	Jun. 30, 2016 USD ($) $ / shares shares	Dec. 31, 2022 shares	Dec. 31, 2021 shares	Feb. 11, 2021 shares	Nov. 30, 2011 USD ($) $ / shares
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Total maximum consideration from exercise of warrants \| $		$ 7,500,000
Preferred shares issued							0	0
Preferred shares outstanding							0	0
IPO
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Number of shares on conversion of each convertible preferred stock									1
Series C 1 Warrants
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Consideration from issuance of warrants \| $		$ 0
Exercise price of warrants (in dollars per share) \| $ / shares		$ 10.21
Series A-1 convertible redeemable preferred shares
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Conversion price (in dollars per share) \| $ / shares			$ 1
Shares issued upon conversion of Series Pre-A Convertible Notes (in shares)			5,473,957
Series A-2 convertible redeemable preferred shares
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Number of new shares issued			2,370,414
Shares issued price per share (in dollars per share) \| $ / shares			$ 1.27
Total consideration from issuance of convertible redeemable preferred shares \| $			$ 3,000,000
Series B convertible redeemable preferred shares
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Number of new shares issued						7,494,537
Shares issued price per share (in dollars per share) \| $ / shares						$ 3.74
Total consideration from issuance of convertible redeemable preferred shares \| $						$ 27,999,995
Series C-1 convertible redeemable preferred shares
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Number of new shares issued				5,597,354
Shares issued price per share (in dollars per share) \| $ / shares				$ 8.93
Total consideration from issuance of convertible redeemable preferred shares \| $				$ 50,000,033
Number of Series C-1 investors to whom warrants were issued \| item		2
Series C-2 convertible redeemable preferred shares
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Number of new shares issued					1,861,121
Shares issued price per share (in dollars per share) \| $ / shares					$ 10.21
Total consideration from issuance of convertible redeemable preferred shares \| $					$ 18,999,999
Series C-3 convertible redeemable preferred shares
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Number of new shares issued	4,452,441
Shares issued price per share (in dollars per share) \| $ / shares	$ 11.23
Total consideration from issuance of convertible redeemable preferred shares \| $	$ 50,000,000
Series Pre-A Convertible Notes
CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS
Amount of Series Pre A Convertible Notes issued \| $										$ 4,590,908
Series Pre A Convertible Notes, Interest rate (as a percent)										6.00%
Conversion price (in dollars per share) \| $ / shares										$ 1

SHARE-BASED COMPENSATION (Details) - USD ($)								9 Months Ended	11 Months Ended	12 Months Ended
SHARE-BASED COMPENSATION (Details) - USD ($)	Mar. 08, 2022	Jan. 07, 2022	Mar. 16, 2021	Jan. 16, 2021	Nov. 09, 2020	Aug. 15, 2020	Aug. 14, 2020	Dec. 22, 2021	Dec. 27, 2022	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2017	Nov. 07, 2015
SHARE-BASED COMPENSATION
Expiration period (in years)										10 years
Share options granted										2,640,598	1,894,119	6,313,373
Incremental compensation cost to be recognized											$ 0
Exercise price (in USD per share)				$ 13.85						$ 3.28	$ 12.31	$ 2.00
Shares issued upon exercise of share options (in shares)										197,975	233,958	3,694,934
Total amount										$ 323,212	$ 226,781	$ 140,928
Number of shares surrendered				491,119
Fair value (in USD per option)				$ 7.85						$ 2.13	$ 8.39	$ 7.01
Maximum
SHARE-BASED COMPENSATION
Vesting period (in years)										5 years
Service conditions and Performance conditions
SHARE-BASED COMPENSATION
Share options granted										4,776,906	2,483,808
Employees \| Modification of vesting schedules and conditions of share options
SHARE-BASED COMPENSATION
Share options granted		2,060,308
Incremental fair value		$ 2,337,697
Management personnel
SHARE-BASED COMPENSATION
Vesting period (in years)						4 years	5 years
Share options granted						184,692
Number of options, vesting schedules and conditions waived					2,375,000
Shares issued upon exercise of share options (in shares)					2,375,000
Total amount					$ 5,197,650
Shares unvested											1,585,000
Management personnel \| Minimum
SHARE-BASED COMPENSATION
Exercise price (in USD per share)					$ 1.83
Management personnel \| Maximum
SHARE-BASED COMPENSATION
Exercise price (in USD per share)					$ 2.26
2015 Plan
SHARE-BASED COMPENSATION
Maximum aggregate number of shares that may be issued															4,336,126
2017 Plan
SHARE-BASED COMPENSATION
Maximum aggregate number of shares that may be issued														6,336,126
2019 Plan
SHARE-BASED COMPENSATION
Maximum aggregate number of shares that may be issued													11,391,131
2021 Plan
SHARE-BASED COMPENSATION
Aggregate ordinary shares reserved for issuance				2,994,000
Incremental percent of shares				5.00%
2021 Plan \| Employees
SHARE-BASED COMPENSATION
Share options granted								1,303,000	2,640,598
2021 Plan \| Employees \| Minimum
SHARE-BASED COMPENSATION
Exercise price (in USD per share)								$ 5.92	$ 0.80
2021 Plan \| Employees \| Maximum
SHARE-BASED COMPENSATION
Exercise price (in USD per share)								$ 17.56	$ 5.60
2021 Plan \| Management personnel
SHARE-BASED COMPENSATION
Share options granted	99,999		23,734

SHARE-BASED COMPENSATION - Share Option Activities (Details) - USD ($)		12 Months Ended
	Jan. 16, 2021	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Number of Options
Outstanding at the beginning		4,809,078	3,294,467	866,028
Granted (in shares)		2,640,598	1,894,119	6,313,373
Exercised (in shares)		(197,975)	(233,958)	(3,694,934)
Forfeited (in shares)		(964,789)	(145,550)	(190,000)
Outstanding at the end		6,286,912	4,809,078	3,294,467	866,028
Vested and expected to vest at the end		6,286,912
Exercisable at the end		2,070,533	1,486,318
Weighted Average Exercise Price
Outstanding at the beginning (in dollars per share)		$ 5.91	$ 1.75	$ 0.65
Granted (in dollars per share)	$ 13.85	3.28	12.31	2.00
Exercised (in dollars per share)		2.08	0.99	1.93
Forfeited (in dollars per share)		6.75	3.02	1.70
Outstanding at the end (in dollars per share)		4.80	5.91	1.75	$ 0.65
Vested and expected to vest at the end (in dollars per share)		4.80
Exercisable at the end (in dollars per share)		6.35	5.87
Weighted Average Grant Date Fair Value
Outstanding at the beginning (in dollars per share)		7.38	6.65	3.67
Granted (in dollars per share)	$ 7.85	2.13	8.39	7.01
Exercised (in dollars per share)		6.95	5.13	6.55
Forfeited (in dollars per share)		7.57	7.71	6.91
Outstanding at the end (in dollars per share)		5.16	7.38	$ 6.65	$ 3.67
Vested and expected to vest at the end (in dollars per share)		5.16
Exercisable at the end (in dollars per share)		$ 6.87	$ 7.05
Weighted Average Remaining Contractual Term and Aggregate Intrinsic Value
Outstanding (in years)		8 years 5 months 8 days	8 years 8 months 4 days	8 years 9 months 10 days	7 years 3 months 7 days
Vested and expected to vest at the end (in years)		8 years 5 months 8 days
Exercisable at the end (in years)		7 years 7 months 13 days	8 years 2 months 12 days
Outstanding at the beginning (in dollars)		$ 2,619,574	$ 33,410,968	$ 6,328,171
Outstanding at the end (in dollars)		94,990	2,619,574	$ 33,410,968	$ 6,328,171
Vested and expected to vest at the end (in dollars)		94,990
Exercisable at the end (in dollars)		$ 55,880	$ 874,180

INCOME TAX EXPENSE - Income tax reconciliation (Details) - USD ($)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
INCOME TAX EXPENSE
Loss before income tax	$ (79,512,792)	$ (71,476,322)	$ (42,397,279)
PRC statutory income tax rate	25.00%	25.00%	25.00%
Income tax credit computed at PRC statutory income tax rate	$ (19,878,198)	$ (17,869,081)	$ (10,599,320)
Impact of PRC preferential income tax rate as qualified TASE	7,951,279	7,147,633	4,239,728
Difference in income tax rates of overseas entities	10,560,029	10,549,985	5,286,487
Research and development super-deduction	(1,724,740)	(569,016)	(718,979)
Research and development tax credits	(569,575)
Nondeductible expenses	3,695	1,054	1,238
Foreign derived intangible income deduction	(487,183)
Changes in valuation allowance	4,517,358	2,277,418	$ 1,790,846
State tax	76,127	291,500
Others	(10,263)	127,880
Income tax expense	$ 459,055	$ 1,701,613

NET LOSS PER SHARE (Details) - USD ($)	12 Months Ended
NET LOSS PER SHARE (Details) - USD ($)	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Numerator:
Net loss attributable to Adagene Inc.'s shareholders	$ (79,971,847)	$ (73,177,935)	$ (42,397,279)
Accretion of convertible redeemable preferred shares to redemption value		(28,553)	(248,113)
Net loss attributable to ordinary shareholders	$ (79,971,847)	$ (73,206,488)	$ (42,645,392)
Denominator:
Weightedaverage number of ordinary shares outstanding-basic	54,135,084	50,032,009	15,950,698
Weightedaverage number of ordinary shares outstanding-diluted	54,135,084	50,032,009	15,950,698
Net Loss per share-basic	$ (1.48)	$ (1.46)	$ (2.67)
Net Loss per share- diluted	$ (1.48)	$ (1.46)	$ (2.67)

- Definition

The amount of net income (loss) for the period per each share of common stock or unit outstanding during the reporting period.

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+ Details

- Definition

Amount, after deduction of tax, noncontrolling interests, dividends on preferred stock and participating securities; of income (loss) available to common shareholders.

+ References

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+ Details

ORGANIZATION AND BASIS OF PRESENTATION (Details)		12 Months Ended
ORGANIZATION AND BASIS OF PRESENTATION (Details)	Feb. 11, 2021 USD ($) $ / shares shares	Dec. 31, 2021 USD ($)	Dec. 31, 2022
ORGANIZATION AND BASIS OF PRESENTATION
Net proceeds \| $		$ 149,411,950
IPO \| American depositary shares
ORGANIZATION AND BASIS OF PRESENTATION
Share price (in USD per share) \| $ / shares	$ 19.00
Shares issued (in shares) \| shares	8,457,100
Net proceeds \| $	$ 145,900,000
Number of ordinary shares represented by each ADS	1.25
Underwriters' option \| American depositary shares
ORGANIZATION AND BASIS OF PRESENTATION
Shares issued (in shares) \| shares	1,103,100
Adagene (Hong Kong) Limited
ORGANIZATION AND BASIS OF PRESENTATION
Percentage of legal ownership by the Company			100.00%
Adagene Incorporated
ORGANIZATION AND BASIS OF PRESENTATION
Percentage of legal ownership by the Company			100.00%
Adagene (Suzhou) Limited
ORGANIZATION AND BASIS OF PRESENTATION
Percentage of legal ownership by the Company			100.00%
Adagene Australia PTY Ltd.
ORGANIZATION AND BASIS OF PRESENTATION
Percentage of legal ownership by the Company			100.00%
Adagene PTE. Ltd.
ORGANIZATION AND BASIS OF PRESENTATION
Percentage of legal ownership by the Company			100.00%
Adagene AG
ORGANIZATION AND BASIS OF PRESENTATION
Percentage of legal ownership by the Company			100.00%
Adagene Project C1 PTE. Ltd.
ORGANIZATION AND BASIS OF PRESENTATION
Percentage of legal ownership by the Company			100.00%

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Impairment of long lived assets to Employee defined contribution plan (Details) - USD ($)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Impairment of long lived assets
Impairment loss	$ 0	$ 0	$ 0
Employee defined contribution plan
Employee benefit expenses	$ 2,984,251	$ 2,223,493	$ 622,377

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of credit risk (Details)	12 Months Ended
	Dec. 31, 2022 USD ($) item	Dec. 31, 2021 USD ($) item	Dec. 31, 2020 item
Concentration of risks
Operating lease right-of-use assets	$ 191,877
Operating lease liabilities	205,817
ASC
Concentration of risks
Operating lease right-of-use assets	600,000
Operating lease liabilities	600,000
Concentration of credit risk \| Cash and cash equivalents and short-term investments \| Mainland of China
Concentration of risks
Cash and cash equivalents	8,617,157	$ 3,650,474
Concentration of credit risk \| Cash and cash equivalents and short-term investments \| Outside the mainland of China
Concentration of risks
Cash and cash equivalents	$ 135,141,521	$ 170,740,769
Concentration of suppliers \| Research and development services purchased
Concentration of risks
Number of major supplier \| item	1	1	1
Concentration of suppliers \| Research and development services purchased \| One supplier
Concentration of risks
Concentration risk percentage	34.10%	18.50%	21.50%

PREPAYMENTS AND OTHER CURRENT ASSETS (Details) - USD ($)	Dec. 31, 2022	Dec. 31, 2021
PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments	$ 1,161,910	$ 1,562,177
Deposits	2,970,421	1,873,843
Others	804,992	619,901
Prepayments and other current assets	$ 4,937,323	$ 4,055,921

PROPERTY, EQUIPMENT AND SOFTWARE, NET (Details) - USD ($)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
PROPERTY, EQUIPMENT AND SOFTWARE, NET
Total property, equipment and software	$ 8,692,268	$ 8,809,881
Less: accumulated depreciation and amortization	(5,909,305)	(5,322,264)
Net book value	2,782,963	3,487,617
Depreciation and amortization	1,145,995	1,125,032	$ 858,408
Machinery and laboratory equipment
PROPERTY, EQUIPMENT AND SOFTWARE, NET
Total property, equipment and software	5,293,386	5,252,399
Leasehold improvements
PROPERTY, EQUIPMENT AND SOFTWARE, NET
Total property, equipment and software	1,055,271	1,152,743
Electronic equipment
PROPERTY, EQUIPMENT AND SOFTWARE, NET
Total property, equipment and software	1,863,963	1,863,956
Furniture and tools
PROPERTY, EQUIPMENT AND SOFTWARE, NET
Total property, equipment and software	29,684	81,467
Vehicles
PROPERTY, EQUIPMENT AND SOFTWARE, NET
Total property, equipment and software	80,266	87,680
Software
PROPERTY, EQUIPMENT AND SOFTWARE, NET
Total property, equipment and software	$ 369,698	$ 371,636

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2022	Dec. 31, 2021
CONSOLIDATED BALANCE SHEETS
Ordinary shares, par value	$ 0.0001	$ 0.0001
Ordinary shares, shares authorized	640,000,000	640,000,000
Ordinary shares, shares issued	54,065,709	54,595,667
Ordinary shares, shares outstanding	54,065,709	54,595,667
Treasury shares	1	94,074

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Nonrecurring (Details) - Nonrecurring basis - USD ($)	Dec. 31, 2022	Dec. 31, 2021
Fair value measurements
Financial assets	$ 0	$ 0
Financial liabilities	$ 0	$ 0

ACCOUNTS RECEIVABLE, NET (Details)	Dec. 31, 2021 USD ($)
ACCOUNTS RECEIVABLE, NET
Accounts receivable	$ 3,000,000
Accounts receivable, net	$ 3,000,000

ACCRUALS AND OTHER CURRENT LIABILITIES (Details) - USD ($)	Dec. 31, 2022	Dec. 31, 2021
ACCRUALS AND OTHER CURRENT LIABILITIES
Professional service fees	$ 1,647,490	$ 935,434
Payroll and related liabilities	1,104,365	3,229,794
Utility and maintenance	40,718	8,685
Other taxes and surcharge	349,039	62,270
Others	71,197	143,060
Accruals and other current liabilities	$ 3,212,809	$ 4,379,243

BORROWINGS - Components (Details) - USD ($)	Dec. 31, 2022	Dec. 31, 2021
Short term borrowings:
Bank loans	$ 10,768,745	$ 3,121,226
Current portion of long term borrowings	2,850,128	1,376,319
Total current borrowings	13,618,873	4,497,545
Long term borrowings:
Bank loans	14,146,541	2,991,829
Total non current borrowings	14,146,541	2,991,829
Total borrowings	$ 27,765,414	$ 7,489,374

BORROWINGS - Short term borrowings (Details)	1 Months Ended
BORROWINGS - Short term borrowings (Details)	Dec. 31, 2022 USD ($)	Jul. 31, 2022 USD ($)	Apr. 30, 2022 USD ($)	Mar. 31, 2022 USD ($)	Aug. 31, 2021 USD ($)	Jun. 30, 2021 USD ($)	Nov. 30, 2020 USD ($)	Sep. 30, 2020 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2022 CNY (¥)	Jul. 31, 2022 CNY (¥)	Apr. 30, 2022 CNY (¥)	Mar. 31, 2022 CNY (¥)	Aug. 31, 2021 CNY (¥)	Jun. 30, 2021 CNY (¥)	Nov. 30, 2020 CNY (¥)	Sep. 30, 2020 CNY (¥)	Jun. 30, 2020 CNY (¥)
Borrowings from Bank of Jiangsu Co., Ltd
Short-term debt
Amount borrowed		$ 2,871,665									¥ 20,000,000
Term of the debt		1 year
Interest rate (as a percent)		3.70%									3.70%
Borrowings from Bank of Ningbo Co., Ltd
Short-term debt
Amount borrowed								$ 766,295									¥ 5,000,000
Term of the debt								1 year
Interest rate (as a percent)								4.20%									4.20%
Borrowings from Agricultural Bank of China Limited
Short-term debt
Amount borrowed					$ 1,568,455	$ 1,552,771			$ 1,532,591					¥ 10,000,000	¥ 9,900,000			¥ 10,000,000
Term of the debt					1 year	1 year			1 year
Interest rate (as a percent)					4.05%	4.05%			4.20%					4.05%	4.05%			4.20%
China Merchants Bank Co., Ltd
Short-term debt
Amount borrowed			$ 2,886,024	$ 1,421,474			$ 770,962					¥ 20,100,000	¥ 9,900,000			¥ 5,000,000
Term of the debt			1 year	1 year			1 year
Interest rate (as a percent)			3.70%	3.90%			4.10%					3.70%	3.90%			4.10%
China Merchants Bank Co., Ltd., two
Short-term debt
Amount borrowed							$ 770,962									¥ 5,000,000
Term of the debt							1 year
Interest rate (as a percent)							4.10%									4.10%
China Construction Bank Corporation
Short-term debt
Amount borrowed	$ 3,589,582									¥ 25,000,000
Term of the debt	1 year
Interest rate (as a percent)	3.65%									3.65%

BORROWINGS - Long term borrowings (Details)	1 Months Ended		12 Months Ended
BORROWINGS - Long term borrowings (Details)	Dec. 31, 2020 USD ($)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 USD ($)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2019 USD ($)	Dec. 31, 2019 CNY (¥)	Dec. 31, 2022 CNY (¥)	Nov. 30, 2022 USD ($)	Nov. 30, 2022 CNY (¥)	Aug. 31, 2022 USD ($)	Aug. 31, 2022 CNY (¥)	May 31, 2022 USD ($)	May 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Sep. 30, 2021 USD ($)	Sep. 30, 2021 CNY (¥)	Sep. 30, 2020 USD ($)	Sep. 30, 2020 CNY (¥)	Jun. 30, 2019 USD ($)	Jun. 30, 2019 CNY (¥)	Feb. 28, 2019 USD ($)	Feb. 28, 2019 CNY (¥)
Debt instrument
Amount repaid			$ 4,353,588		$ 5,089,717		$ 1,063,670
Current portion of long-term borrowings			2,850,128		1,376,319
Borrowings from Shanghai Pudong Development Bank Co., Ltd., one
Debt instrument
Amount borrowed																									$ 1,076,874	¥ 7,500,000
Term of the debt																									3 years	3 years
Interest rate (as a percent)																									5.46%	5.46%
Amount repaid			358,958	¥ 2,500,000	484,594	¥ 3,375,000	$ 179,479	¥ 1,250,000	$ 53,844	¥ 375,000
Current portion of long-term borrowings					358,958													¥ 2,500,000
Borrowings from Shanghai Pudong Development Bank Co., Ltd., two
Debt instrument
Amount borrowed																							$ 861,500	¥ 6,000,000
Term of the debt																							3 years	3 years
Interest rate (as a percent)																							5.23%	5.23%
Amount repaid	$ 143,583	¥ 1,000,000	287,167	2,000,000	387,675	2,700,000			$ 43,075	¥ 300,000
Current portion of long-term borrowings					287,167													2,000,000
Borrowings from Shanghai Pudong Development Bank Co., Ltd., three
Debt instrument
Amount borrowed																					$ 2,369,124	¥ 16,500,000
Term of the debt																					3 years	3 years
Interest rate (as a percent)																					4.27%	4.27%
Amount repaid			552,796	3,850,000	236,912	¥ 1,650,000
Current portion of long-term borrowings			1,579,416		552,796						¥ 11,000,000							3,850,000
Borrowings from Shanghai Pudong Development Bank Co., Ltd., four
Debt instrument
Amount borrowed																			$ 1,220,458	¥ 8,500,000
Term of the debt																			3 years	3 years
Interest rate (as a percent)																			4.05%	4.05%
Amount repaid			61,023	425,000
Current portion of long-term borrowings			122,046		$ 61,023						850,000							¥ 425,000
Borrowings from Shanghai Pudong Development Bank Co., Ltd., five
Debt instrument
Amount borrowed																$ 2,871,665	¥ 20,000,000
Term of the debt																3 years	3 years
Interest rate (as a percent)																4.00%	4.00%
Amount repaid			71,792	¥ 500,000
Current portion of long-term borrowings			215,375								1,500,000
Borrowings from Shanghai Pudong Development Bank Co., Ltd., six
Debt instrument
Amount borrowed														$ 2,871,665	¥ 20,000,000
Term of the debt														3 years	3 years
Interest rate (as a percent)														4.00%	4.00%
Current portion of long-term borrowings			143,583								1,000,000
Borrowings from Shanghai Pudong Development Bank Co., Ltd., seven
Debt instrument
Amount borrowed												$ 1,435,833	¥ 10,000,000
Term of the debt												3 years	3 years
Interest rate (as a percent)												4.00%	4.00%
Current portion of long-term borrowings			71,792								500,000
Borrowings from Agricultural Bank of China Limited
Debt instrument
Amount borrowed												$ 1,421,474	¥ 9,900,000	$ 1,421,474	¥ 9,900,000	$ 4,307,498	¥ 30,000,000
Term of the debt												3 years	3 years	3 years	3 years	3 years	3 years
Interest rate (as a percent)												4.00%	4.00%	4.00%	4.00%	4.00%	4.00%
Current portion of long-term borrowings			$ 143,583								¥ 1,000,000					$ 430,750	¥ 3,000,000

BORROWINGS - Future maturities of short term borrowings and long term borrowings (Details) - USD ($)	Dec. 31, 2022	Dec. 31, 2021
BORROWINGS
2022		$ 4,497,545
2023	$ 13,618,873	1,858,619
2024	4,124,429	1,133,210
2025	10,022,112
Total borrowings	$ 27,765,414	$ 7,489,374

CONVERTIBLE REDEEMABLE PREFERRED SHARES AND WARRANTS - Preferred Share Activities (Details) - USD ($)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Increase (Decrease) in Temporary Equity
Beginning balance	$ 154,449,407	$ 154,201,294
Conversion of Preferred Shares to Ordinary Shares	(154,477,960)
Ending balance		154,449,407
Series A-1 convertible redeemable preferred shares
Increase (Decrease) in Temporary Equity
Beginning balance	5,473,957	5,473,957
Conversion of Preferred Shares to Ordinary Shares	(5,473,957)
Ending balance		5,473,957
Series A-2 convertible redeemable preferred shares
Increase (Decrease) in Temporary Equity
Beginning balance	3,000,000	3,000,000
Conversion of Preferred Shares to Ordinary Shares	(3,000,000)
Ending balance		3,000,000
Series B convertible redeemable preferred shares
Increase (Decrease) in Temporary Equity
Beginning balance	27,999,995	27,999,995
Conversion of Preferred Shares to Ordinary Shares	(27,999,995)
Ending balance		27,999,995
Series C-1 convertible redeemable preferred shares
Increase (Decrease) in Temporary Equity
Beginning balance	48,975,456	48,727,343
Accretion of Preferred Shares to redemption value	28,553	248,113
Conversion of Preferred Shares to Ordinary Shares	(49,004,009)
Ending balance		48,975,456
Series C-2 convertible redeemable preferred shares
Increase (Decrease) in Temporary Equity
Beginning balance	18,999,999	18,999,999
Conversion of Preferred Shares to Ordinary Shares	(18,999,999)
Ending balance		18,999,999
Series C-3 convertible redeemable preferred shares
Increase (Decrease) in Temporary Equity
Beginning balance	50,000,000	50,000,000
Conversion of Preferred Shares to Ordinary Shares	$ (50,000,000)
Ending balance		$ 50,000,000

COLLABORATION ARRANGEMENTS (Details)	1 Months Ended				12 Months Ended
COLLABORATION ARRANGEMENTS (Details)	Mar. 31, 2022 USD ($)	Apr. 30, 2019 item	Dec. 31, 2018 USD ($)	Dec. 31, 2018 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 USD ($)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2019 CNY (¥)	Aug. 31, 2022 USD ($)	Apr. 30, 2022 USD ($)	Feb. 28, 2021 USD ($)
Collaborative Arrangement and Arrangement Other than Collaborative
Revenues					$ 9,292,724	$ 10,175,258		$ 700,913
Accounts receivable, net						3,000,000
Guilin Sanjin Pharmaceutical Co., Ltd. License Agreement
Collaborative Arrangement and Arrangement Other than Collaborative
Upfront cash payment received			$ 1,511,168	¥ 10,000,000
Agreed period for not to grant rights associated with antibodies to third parties			3 years	3 years
Dragon Boat Biopharmaceutical (Shanghai) Limited License Agreement
Collaborative Arrangement and Arrangement Other than Collaborative
Upfront cash payment received								573,378	¥ 4,000,000
Agreed period for not to grant rights associated with antibodies to third parties					3 years
Revenues					$ 0	1,240,022	¥ 8,000,000		¥ 0	¥ 0
Milestone fee received						620,011	¥ 4,000,000
ADCT Collaboration Agreement
Collaborative Arrangement and Arrangement Other than Collaborative
Revenues						225,000		225,000
Maximum number of selected targets, agreed for generation of antibodies \| item		2
Minimum threshold written notice period for termination of agreement					30 days
Period for reservation of target right					1 year
Other income								$ 100,000
Exelixis Inc Agreement
Collaborative Arrangement and Arrangement Other than Collaborative
Upfront cash payment received					$ 1,100,000	11,000,000
Revenues					0	8,500,000
Payment of upfront-refundable fee												$ 1,100,000	$ 11,000,000
Milestone payments receivable based on development and regulatory milestones													127,500,000
Milestone payments receivable based on sales													$ 262,500,000
Accounts receivable, net						$ 3,000,000
ADCT Material Transfer and Option Agreement
Collaborative Arrangement and Arrangement Other than Collaborative
Revenues					300,000
Payment of upfront-refundable fee											$ 300,000
Sanofi Agreement
Collaborative Arrangement and Arrangement Other than Collaborative
Upfront cash payment received	$ 17,500,000				17,500,000
Revenues					$ 8,992,724
Milestone payments receivable based on development and regulatory milestones	173,500,000
Milestone payments receivable based on sales	$ 450,000,000

INCOME TAX EXPENSE (Details) - USD ($)		12 Months Ended			108 Months Ended
INCOME TAX EXPENSE (Details) - USD ($)	Jan. 01, 2008	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2023
Income tax rate (as a percent)		25.00%	25.00%	25.00%
Net operating losses		$ 50,742,841
Provision for income taxes		$ 459,055	$ 1,701,613
PRC
Income tax rate (as a percent)	25.00%
Dividends withholding tax rate		10.00%
Net operating losses		$ 17,886,069
PRC \| TASE
Preferential tax rate (as a percent)	15.00%
Effective period of TASE certificate (in years)	3 years
PRC \| TASE \| Adagene (Suzhou) Limited
Preferential tax rate (as a percent)					15.00%
Hong Kong
Income tax rate (as a percent)			16.50%	16.50%
Net operating losses		5,445,071
Withholding tax			$ 0
Hong Kong \| Adagene (Hong Kong) Limited
Assessable profits or earnings			0	$ 0
Provision for income taxes		$ 0	0	0
Australia
Income tax rate (as a percent)		30.00%
Dividends withholding tax rate		30.00%
Net operating losses		$ 7,511,343
Australia \| Adagene Australia PTY Ltd.
Taxable Income		0	0	0
Provision for income taxes		$ 0	$ 0	$ 0
United States
Dividends withholding tax rate		30.00%
Net operating losses		$ 10,807,828
State income tax rate (as a percent)		21.00%
California
State income tax rate (as a percent)		8.84%
SWITZERLAND
Income tax rate (as a percent)		8.50%
Dividends withholding tax rate		35.00%
Net operating losses		$ 8,272,007
SWITZERLAND \| Adagene AG
Income tax rate (as a percent)		6.50%
Capital tax rate for Canton of Basel		0.10%
SINGAPORE
Net operating losses		$ 820,523

INCOME TAX EXPENSE - Deferred tax assets and deferred tax liabilities (Details) - USD ($)	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Deferred tax assets:
Net operating loss carry forward	$ 8,217,976	$ 4,949,000
Tax credit carry forward	391,843
Capitalized research and development expenses	756,197
Capitalized inventory	94,954	95,589
Unrealized foreign exchange gain/losses	116,238	39,166
Accrued expenses	29,702
Amortization of right-of-use assets and interest of lease liabilities	546
Depreciation and amortization of property, equipment and software		79
Gross deferred tax assets	9,607,456	5,083,834
Less: valuation allowance	(9,524,497)	(5,007,139)	$ (2,729,721)
Total deferred tax assets, net	82,959	76,695
Deferred tax liabilities:
Depreciation and amortization of property, equipment and software	(82,959)	(120,858)
Deferred tax liabilities	$ (82,959)	(120,858)
Total deferred tax liabilities, net		$ (44,163)

INCOME TAX EXPENSE - Valuation Allowance (Details) - USD ($)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Movement of the valuation allowance
Balance as of January 1	$ 5,007,139	$ 2,729,721
Addition	4,517,358	2,277,418
Balance as of December 31	$ 9,524,497	$ 5,007,139

RELATED PARTY TRANSACTIONS (Details) - USD ($)	12 Months Ended
RELATED PARTY TRANSACTIONS (Details) - USD ($)	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Related Party Transaction [Line Items]
Amounts due from related parties	$ 619,432	$ 4,506,670
Amounts due to related parties	19,323,337	10,466,061
Receipt of CRO and CMO services
Related Party Transaction [Line Items]
Related party transactions	35,127,463	13,079,018	$ 9,892,295
WuXi AppTec Group
Related Party Transaction [Line Items]
Amounts due from related parties	503,941	3,080,116
Amounts due to related parties	1,482,461	173,793
WuXi AppTec Group \| Receipt of CRO and CMO services
Related Party Transaction [Line Items]
Related party transactions	7,362,713	517,742	2,674,586
WuXi Biologics (Cayman) Inc.
Related Party Transaction [Line Items]
Amounts due from related parties	115,491	1,426,554
Amounts due to related parties	17,840,876	10,292,268
WuXi Biologics (Cayman) Inc. \| Receipt of CRO and CMO services
Related Party Transaction [Line Items]
Related party transactions	$ 27,764,750	$ 12,561,276	$ 7,217,709

LEASES - Information related to operating leases (Details)	12 Months Ended
	Dec. 31, 2022 USD ($)
Assets
Operating lease right-of-use assets	$ 191,877
Liabilities
Current portion of operating lease liabilities	151,983
Operating lease liabilities	$ 53,834
Weighted average remaining lease term (years)	1 year 3 months 18 days
Weighted average discount rate	4.60%
Operating cash paid for amounts included in the measurement of lease liabilities	$ 313,929
Right-of-use assets obtained in exchange for new operating lease liabilities	$ 217,227

LEASES - Information related to operating lease activity (Details)	12 Months Ended
	Dec. 31, 2022 USD ($)
Operating lease rental expense
Amortization of right-of-use assets	$ 283,276
Expense for short-term leases within 12 months	34,729
Interest of lease liabilities	20,259
Total operating lease rental expense	$ 338,264

LEASES - Future annual minimum lease under non-cancelable operating leases with initial terms in excess of one year under ASC 840, Leases (Details)	Dec. 31, 2021 USD ($)
For the years ending:
2022	$ 412,754
2023	255,309
2024	70,367
Total	$ 738,430

LEASES - Maturities of lease liabilities (Details)	Dec. 31, 2022 USD ($)
LEASES
2023	$ 157,603
2024	54,823
Total undiscounted lease payments	212,426
Less: imputed interest	(6,609)
Total lease liabilities	$ 205,817

RESTRICTED NET ASSETS (Details) - USD ($)	12 Months Ended
RESTRICTED NET ASSETS (Details) - USD ($)	Dec. 31, 2022	Dec. 31, 2021
RESTRICTED NET ASSETS
Minimum percentage of profit after tax to be transferred to statutory reserve	10.00%
Statutory reserve required percentage on registered capital	50.00%
Total restricted net assets	$ 1,860,667	$ 1,860,667
After tax income, annual appropriations, percentage	10.00%
Restrictions on net assets of PRC subsidiaries , threshold percentage	25.00%

Treasury Shares (Details) - USD ($)			12 Months Ended
Treasury Shares (Details) - USD ($)	Jun. 29, 2022	Jul. 07, 2021	Dec. 31, 2022	Dec. 31, 2021
Treasury Shares
Total consideration of share repurchased			$ 3,976,681	$ 2,361,576
Treasury shares			1	94,074
2021 Share Repurchase Program
Treasury Shares
Share repurchase program authorized amount		$ 20,000,000
Term of share repurchase program (in months)		12 months
2022 Share Repurchase Program
Treasury Shares
Share repurchase program authorized amount	$ 10,000,000
Term of share repurchase program (in months)	12 months
American depositary shares
Treasury Shares
Repurchased shares retired (in shares)			1,285,604	160,880
Treasury shares			1	75,259
American depositary shares \| 2021 Share Repurchase Program
Treasury Shares
Shares repurchased (in shares)			1,170,446	236,139
Total consideration of share repurchased			$ 3,904,399	$ 2,361,576
American depositary shares \| 2022 Share Repurchase Program
Treasury Shares
Shares repurchased (in shares)			39,900
Total consideration of share repurchased			$ 72,282
Ordinary shares
Treasury Shares
Repurchased shares retired (in shares)			1,607,005	201,100
Treasury shares			1	94,074
Ordinary shares \| 2021 Share Repurchase Program
Treasury Shares
Shares repurchased (in shares)			1,463,057	295,174
Ordinary shares \| 2022 Share Repurchase Program
Treasury Shares
Shares repurchased (in shares)			49,875

SUBSEQUENT EVENTS (Details)	4 Months Ended
SUBSEQUENT EVENTS (Details)	Apr. 30, 2023 shares
Subsequent events \| 2021 Plan \| Management personnel
SUBSEQUENT EVENTS
Total number of ordinary shares issued	582,630