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Adagene Reports Full Year 2023 Financial Results and Provides Corporate Update

– Data for masked anti-CTLA-4 SAFEbody® ADG126 (muzastotug) highlight best-in-class therapeutic index and demonstrate clinical benefits in metastatic microsatellite-stable (MSS) colorectal cancer (CRC) with higher, more frequent and repeat dosing of anti-CTLA-4 therapy in combination with anti-PD-1 –

– Ongoing combination phase 2 dose expansion in MSS CRC increased to over 50 patients, including initiation of a new, unprecedented 20 mg/kg loading dose regimen, with data anticipated during 2024 –

– Validation of SAFEbody masking technology by Exelixis and Sanofi showcases versatility of platform across modalities including antibody-drug conjugates, bi-specific and monoclonal antibodies –

– Cash balance of approximately US$110 million funds streamlined operations into 2026 –

SAN DIEGO and SUZHOU, China, March 29, 2024 (GLOBE NEWSWIRE) — Adagene Inc. (“Adagene”) (Nasdaq: ADAG), a platform-driven, clinical-stage biotechnology company transforming the discovery and development of novel antibody-based therapies, today reported financial results for the full year 2023 and provided corporate updates.

“The SAFEbody precision masking technology platform remains at the core of our value proposition given its ability to enhance next generation antibody-based therapies that span modalities, including bispecific T-cell engagers and antibody-drug conjugates, both areas where a wider therapeutic index is needed to fully address solid tumors,” said Peter Luo, Ph.D., Chairman, CEO and President of R&D at Adagene.

He continued, “Turning to our clinical pipeline, we remain steadfast in our belief that anti-CTLA-4 therapy can be reimagined as a cornerstone of cancer care by enabling higher, more frequent and repeated doses in combination with anti-PD-1 and other therapies. With our SAFEbody platform, we have a 30-fold improved therapeutic index for ADG126 and a mechanism enabling CTLA-4 mediated intratumoral Treg depletion. We are taking anti-CTLA-4 therapy to a new level unleashing this proven immunotherapy where safety has limited its therapeutic potential.”

“In particular, our new loading dose regimen in late-stage MSS CRC patients enables our masked anti-CTLA-4 therapy to reach a high initial concentration, close to the steady state of activated species within the tumor tissue to immediately engage the CTLA-4 pathway and stop the tumor from aggressive growth. This loading dose strategy, together with repeated maintenance doses at 10 mg/kg showing limited treatment-related grade 3 and no higher toxicities with minimal late-onset toxicities for ADG126, is expected to engage the CTLA-4 target consistently, thereby maintaining and sustaining clinical benefit, via both the initial response rate and prolonged survival benefit. We look forward to reporting more clinical results for the ADG126 combination dose expansion in MSS CRC later this year.”

PIPELINE HIGHLIGHTS

COLLABORATIONS

CHANGE OF BOARD OF DIRECTORS

The following changes to Adagene’s Board of Directors will be effective upon the filing of its 2023 annual report on Form 20-F (“2023 Annual Report”), unless otherwise noted:

The Board would like to take this opportunity to express their sincere gratitude to Dr. Min Li and Ms. Yan Li for their valuable contributions to the Board during their tenure. Background of the newly appointed directors and their terms are detailed in the 2023 Annual Report.

2024 MILESTONES & CASH RUNWAY INTO 2026

Consistent with ongoing initiatives to prudently manage its cash balance, Adagene expects its current cash balance to fund activities into 2026, with the following milestones:

FINANCIAL HIGHLIGHTS

Cash and Cash Equivalents
Cash and cash equivalents were US$109.9 million as of December 31, 2023, compared to US$143.8 million as of December 31, 2022. Total borrowings from commercial banks in China (denominated in RMB) decreased to US$21.9 million as of December 31, 2023 from US$27.8 million as of December 31, 2022. The associated loan proceeds were primarily used to pay for the company’s R&D activities in China.

Net Revenue:
Net revenue was US$18.1 million for the year ended December 31, 2023, compared to US$9.3 million in 2022. The increase of approximately 95% reflects net revenue recognized upon fulfillment of certain performance obligations associated with the collaboration and technology licensing agreements with Exelixis and Sanofi, respectively. Net revenue also included a milestone payment of US$3.0 million from Exelixis received in June 2023.

Research and Development (R&D) Expenses:
R&D expenses were US$36.6 million for the year ended December 31, 2023, compared to US$81.3 million in 2022. The decrease of approximately 55% in R&D expenses reflects clinical focus on and prioritization of the company’s masked, anti-CTLA-4 SAFEbody ADG126.

Administrative Expenses:
Administrative expenses were US$8.7 million for the year ended December 31, 2023, compared to US$11.9 million in 2022. The decrease was due to both a reduction in personnel and in office-related expenses as a result of cost-control measures.

Other Operating Income, Net:
Other operating income, net was US$3.5 million for the year ended December 31, 2023. Other operating income, net included a one-time compensation payment from a contract manufacturer for a preclinical-related outsourcing arrangement.

Net Loss:
Net loss attributable to Adagene Inc.’s shareholders was US$18.9 million for the year ended December 31, 2023, compared to US$80.0 million in 2022.

Ordinary Shares Outstanding:
As of December 31, 2023, there were 55,145,839 ordinary shares issued and outstanding. Each American depository share, or ADS, represents one and one quarter (1.25) ordinary shares of the company.

Non-GAAP Net Loss:
Non-GAAP net loss, which is defined as net loss attributable to ordinary shareholders for the period after excluding share-based compensation expenses, was US$11.7 million for the year ended December 31, 2023, compared to US$69.5 million in 2022. Please refer to the section in this press release titled “Reconciliation of GAAP and Non-GAAP Results” for details.

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

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

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

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

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

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

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

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

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

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

Safe Harbor Statement

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

Investor & Media Contact:
Ami Knoefler
650-739-9952
ir@adagene.com

FINANCIAL TABLES FOLLOW

Unaudited Consolidated Balance Sheets

  December 31,
2022
December 31,
2023
  US$ US$
ASSETS    
Current assets:    
Cash and cash equivalents 143,758,678   109,934,257  
Amounts due from related parties 619,432   222,027  
Prepayments and other current assets 4,937,323   3,287,445  
Total current assets 149,315,433   113,443,729  
Property, equipment and software, net 2,782,963   1,835,121  
Operating lease right-of-use assets 191,877   365,103  
Other non-current assets 109,572   84,885  
TOTAL ASSETS 152,399,845   115,728,838  
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable 3,666,124   3,093,752  
Contract liabilities 15,107,276    
Amounts due to related parties 19,323,337   16,714,326  
Accruals and other current liabilities 3,212,809   3,001,508  
Income tax payable   52,884  
Short-term borrowings 10,768,745   4,235,673  
Current portion of long-term borrowings 2,850,128   4,161,549  
Current portion of operating lease liabilities 151,983   195,955  
Total current liabilities 55,080,402   31,455,647  
Long-term borrowings 14,146,541   13,540,034  
Operating lease liabilities 53,834   173,660  
Other non-current liabilities 28,718    
TOTAL LIABILITIES 69,309,495   45,169,341  
Commitments and contingencies    
Shareholders’ equity:    
Ordinary shares (par value of US$0.0001 per share; 640,000,000 shares authorized, and 54,065,709 shares issued and outstanding as of December 31, 2022; and 640,000,000 shares authorized, and 55,145,839 shares issued and outstanding as of December 31, 2023) 5,497   5,547  
Treasury shares, at cost (1 share as of December 31, 2022 and December 31, 2023) (4 ) (4 )
Additional paid-in capital 342,739,268   350,105,518  
Accumulated other comprehensive loss (849,305 ) (1,800,088 )
Accumulated deficit (258,805,106 ) (277,751,476 )
Total shareholders’ equity 83,090,350   70,559,497  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 152,399,845   115,728,838  

Unaudited Consolidated Statements of Comprehensive Loss

  For the Year Ended December 31, 2022 For the Year Ended December 31, 2023
  US$ US$
Revenues    
Licensing and collaboration revenue 9,292,724   18,111,491  
Operating expenses and income    
Research and development expenses (81,339,540 ) (36,639,146 )
Third parties (46,212,077 ) (33,978,642 )
Related parties (35,127,463 ) (2,660,504 )
Administrative expenses (11,873,867 ) (8,672,843 )
Other operating income, net   3,480,632  
Loss from operations (83,920,683 ) (23,719,866 )
Interest income 377,501   4,283,085  
Interest expense (693,323 ) (1,107,820 )
Other income, net 2,168,388   1,843,437  
Foreign exchange gain, net 2,555,325   1,446,202  
Loss before income tax (79,512,792 ) (17,254,962 )
Income tax expense (459,055 ) (1,691,408 )
Net loss attributable to Adagene Inc.’s shareholders (79,971,847 ) (18,946,370 )
Other comprehensive loss    
Foreign currency translation adjustments, net of nil tax (755,324 ) (950,783 )
Total comprehensive loss attributable to Adagene Inc.’s shareholders (80,727,171 ) (19,897,153 )
Net loss attributable to Adagene Inc.’s shareholders (79,971,847 ) (18,946,370 )
Net loss attributable to ordinary shareholders (79,971,847 ) (18,946,370 )
Weighted average number of ordinary shares used in per share calculation:    
—Basic 54,135,084   54,737,530  
—Diluted 54,135,084   54,737,530  
Net loss per ordinary share    
—Basic (1.48 ) (0.35 )
—Diluted (1.48 ) (0.35 )

Reconciliation of GAAP and Non-GAAP Results

  For the Year Ended December 31, 2022 For the Year Ended December 31, 2023
  US$ US$
GAAP net loss attributable to ordinary shareholders (79,971,847 ) (18,946,370 )
Add back:    
Share-based compensation expenses 10,520,282   7,271,700  
Non-GAAP net loss (69,451,565 ) (11,674,670 )
Weighted average number of ordinary shares used in per share calculation:    
—Basic 54,135,084   54,737,530  
—Diluted 54,135,084   54,737,530  
Non-GAAP net loss per ordinary share    
—Basic (1.28 ) (0.21 )
—Diluted (1.28 ) (0.21 )


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