Adagene Reports Financial Results for the Six Months Ended

Adagene Reports Financial Results for the Six

Months Ended June 30, 2021

and Provides Corporate Updates

- Established three clinical collaborations

with Merck to conduct global combination trials

with pembrolizumab for three clinical-stage oncology candidates -

- Evidence of ADG106 efficacy with favorable

safety profile shown in monotherapy trials; combination trials

ramping up to target biomarker-enriched indications and PD-1 resistant

- Strong potential for differentiated profile

NEObody anti-CTLA-4 candidate, ADG116, demonstrated in ongoing phase 1 trial -

- First SAFEbody program, ADG126, advancing

in phase 1 dose-escalation -

- Continued execution of multiple preclinical

programs towards IND, leveraging the company's powerful

antibody-based technology platforms -

- Further strengthened leadership team and

expanded network of scientific

and strategic advisors to develop best-in-class pipeline -

SAN FRANCISCO, Calif. and SUZHOU, China, August

26, 2021 - Adagene Inc. ("Adagene") (Nasdaq: ADAG), a platform-driven, clinical-stage biopharmaceutical company

committed to transforming the discovery and development of novel antibody-based immunotherapies, today reported financial results for

the six months ended June 30, 2021, and provided corporate updates.

"During the first half of 2021, we advanced

our clinical pipeline of three highly differentiated immuno-oncology candidates, while building a robust pipeline of novel preclinical

programs that leverage our unique computational biology and artificial intelligence (AI) powered technology platforms," said Peter

Luo, Ph.D., Co-founder, Chief Executive Officer and Chairman of Adagene. "With three Merck collaborations now in place, we've

refined our global clinical development strategies to enhance efficiency and optimize our plans moving forward, while we anticipate key

upcoming data from ongoing trials. Our pipeline aims to transform cancer therapy with the first of a new class of agonist antibodies targeting

CD137, as well as new modalities and novel combinations to unlock the value of CTLA-4 as a proven target and the backbone of future immunotherapies.

Applying our unique technology platforms and translational expertise, our goal is to strike a balance between safety and efficacy, addressing

the core challenge of oncology drug development."

Recent Highlights and Upcoming Milestones

ADG106: This NEObody program is

a fully human ligand-blocking, agonistic anti-CD137 IgG4 monoclonal antibody (mAb) that is being evaluated in patients with advanced

solid tumors and/or non-Hodgkin's lymphoma.

ADG116: This NEObody program,

targeting a unique epitope of CTLA-4, is being evaluated in patients with advanced/metastatic solid tumors. ADG116 is designed to

enhance efficacy by potent Treg depletion in the tumor microenvironment (TME) and to maintain its physiological function by soft

ligand blocking in order to address safety concerns associated with existing CTLA-4 therapeutics.

ADG126: The SAFEbody

program targets CTLA-4 with a compelling preclinical profile and is designed to provide enhanced safety. ADG126 is designed for

conditional activation in the TME, as well as to enhance efficacy by potent Treg depletion and to maintain its physiological

function by soft ligand blocking in order to expand the therapeutic index and further address safety concerns with existing CTLA-4

Preclinical Discovery Programs: The company

continues to expand and advance a pipeline of innovative preclinical programs leveraging its NEObody, SAFEbody and/or POWERbody

technologies to support the goal of submitting more than ten INDs or equivalent applications in the next three to five years.

Financial Highlights

Cash and Cash Equivalents

Cash and cash equivalents were US$208.3 million

as of June 30, 2021, compared to US$75.2 million as of December 31, 2020. The increase was mainly due to net proceeds of US$145.9 million

from the company's Initial Public Offering in February 2021. In addition, in March 2021, Adagene received US$11.0 million from Exelixis,

Inc., as per the terms of the collaboration and license agreement.

Prepayments and Other Current Assets

Prepayments and other current assets were US$5.4

million as of June 30, 2021, compared to US$3.8 million as of December 31, 2020. The increase was driven by expanded R&D activities

and associated advanced payments made.

Contract Liabilities

Contract liabilities were US$11.1 million as of

June 30, 2021, compared to US$0.7 million as of December 31, 2020. The increase was due to the collaboration and license agreement signed

with Exelixis as the related performance obligations have not been fulfilled.

Net revenue was US$1.4 million for the six months

ended June 30, 2021, compared to US$0.3 million for the same period in 2020. The increase was due to a payment of US$1.2 million from

Dragon Boat Pharmaceuticals, a subsidiary of Sanjin, related to fulfillment of performance obligations associated with the companies'

collaboration to develop antibody-based therapies.

Research and Development Expenses

Research and development expenses were US$31.5

million for the six months ended June 30, 2021, compared to US$14.9 million for the same period in 2020. The increase was primarily attributable

to an (i) increase in payroll and other related personnel costs by US$4.3 million due to headcount growth and average payroll increase

in research and development, (ii) increase in non-cash share-based compensation expenses by US$3.1 million, and (iii) increase in costs

related to preclinical testing and clinical trials due to progression of the programs and increased contract manufacturing costs by US$8.0

million. Adagene incurred US$16.6 million for project ADG106, ADG116 and ADG126 for the six months ended June 30, 2021, compared to US$13.0

million for the same period in 2020. Besides, Adagene incurred US$14.8 million for preclinical product candidates, research pipeline and

others for the six months ended June 30, 2021, compared to US$1.9 million for the same period in 2020.

General and Administrative (G&A) Expenses

G&A expenses were US$7.4 million for the six

months ended June 30, 2021, compared to US$4.7 million for the same period in 2020. The increase was primarily due to an (i) increase

in headcount and average payroll and (ii) increase in professional fees and office expenses.

The net loss attributable to Adagene Inc.'s

shareholders was US$37.2 million for the six months ended June 30, 2021, compared to US$18.2 million for the six months ended June 30,

Non-GAAP net loss, which is defined as net loss

attributable to ordinary shareholders for the period after excluding (i) share-based compensation expenses and (ii) accretion of convertible

redeemable preferred shares to redemption value was US$27.0 million for the six months ended June 30, 2021, compared to US$11.1 million

for the six months ended June 30, 2020. 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/period, which are non-GAAP financial measures, in evaluating its operating results and for financial

and operational decision-making purposes. The Company believes that non-GAAP net loss and non-GAAP net loss per ordinary shares for the

year/period help identify underlying trends in the Company's business that could otherwise be distorted by the effect of certain

expenses that the Company includes in its loss for the year/period. The Company believes that non-GAAP net loss and non-GAAP net loss

per ordinary shares for the year/period provide useful information about its results of operations, enhances the overall understanding

of its past performance and future prospects and allows for greater visibility with respect to key metrics used by its management in its

financial and operational decision-making.

Non-GAAP net loss and non-GAAP net loss per ordinary

shares for the year/period should not be considered in isolation or construed as an alternative to operating profit, loss for the year/period

or any other measure of performance or as an indicator of its operating performance. Investors are encouraged to review non-GAAP net loss

and non-GAAP net loss per ordinary shares for the year/period 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/period here may not be comparable to similarly titled measures