Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations for the three and six months ended March 31, 2026 and 2025 should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Report and in conjunction with the audited financial statements of Citius Pharmaceuticals, Inc. included in our Annual Report on Form 10-K for the year ended September 30, 2025, filed with the SEC on December 23, 2025, as amended on January 28, 2026. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see "Cautionary Note Regarding Forward-Looking Statements" on page iii of this Report.

Business

We are a biopharmaceutical company dedicated to the development and commercialization of first-in-class critical care products. On September 12, 2014, we acquired Citius Pharmaceuticals, LLC as a wholly-owned subsidiary. Citius Pharmaceuticals, LLC was dissolved on December 29, 2023.

On March 30, 2016, we acquired all of the outstanding stock of Leonard-Meron Biosciences, Inc. by issuing shares of our common stock. We acquired identifiable intangible assets of $19,400,000 related to in-process research and development and recorded goodwill of $9,346,796 for the excess of the purchase consideration over the net assets acquired.

On September 11, 2020, we formed NoveCite, Inc., of which we own 75% of the issued and outstanding capital stock.

On August 23, 2021, we formed Citius Acquisition Corp., or SpinCo, as a wholly-owned subsidiary in conjunction with the acquisition of LYMPHIR, but Citius Acquisition did not begin operations until April 2022, when Citius Pharma transferred to it the assets related to LYMPHIR, including the related license agreement with Eisai and the related asset purchase agreement with Dr. Reddy's Laboratories SA, a subsidiary of Dr. Reddy's. At this time, Citius Acquisition changed its name to Citius Oncology, Inc. In August 2024, as part of the merger, the new publicly-traded company and majority-owned subsidiary was named Citius Oncology, Inc.

In-process research and development of $19,400,000 represents the value of LMB's leading drug candidate (Mino-Lok), which is an antibiotic solution used to treat catheter-related bloodstream infections and is expected to be amortized on a straight-line basis over a period of eight years commencing upon revenue generation. Goodwill of $9,346,796 represents the value of LMB's industry relationships and its assembled workforce. Goodwill will not be amortized but will be tested at least annually for impairment. In-process research and development of $73,400,000 represents the value of our exclusive license for LYMPHIR (denileukin diftitox), an oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma and is being amortized on a straight-line basis over the remaining period of market exclusivity commencing upon revenue generation in December 2025.

Through March 31, 2026, we have devoted substantially all of our efforts to product development, raising capital, building infrastructure through strategic alliances and coordinating activities relating to our proprietary products. We have realized limited revenues from the sale of LYMPHIR, which commenced in December 2025.

Reverse Stock Split

Effective November 25, 2024, we executed a reverse stock split of our common stock, at a ratio of 1-for-25. All share amounts have been retroactively adjusted to reflect the split.

Patent and Technology License Agreements

Mino-Lok^® - LMB has a patent and technology license agreement with Novel Anti-Infective Therapeutics, Inc. ("NAT") to develop and commercialize Mino-Lok on an exclusive, worldwide sub-licensable basis, as amended. Since May 2014, LMB has paid an annual maintenance fee, which began at $30,000 and has increased over five years to $90,000, where it will remain until the commencement of commercial sales of a product subject to the license. LMB will also pay annual royalties on net sales of licensed products, with a low double digit royalty rate (within a range of 10% to 15%). In limited circumstances in which the licensed product is not subject to a valid patent claim and a competitor is selling a competing product, the royalty rate is in the low to mid-single digits (within a range of 2% to 7%). After a commercial sale is obtained, LMB must pay minimum aggregate annual royalties of $100,000 in the first commercial year which is prorated for a less-than-12-month period, increasing $25,000 per year to a maximum of $150,000 annually. LMB must also pay NAT up to $1,100,000 upon achieving specified regulatory and sales milestones. Finally, LMB must pay NAT a specified percentage of payments received from any sub-licensees.

NoveCite - On October 6, 2020, our subsidiary NoveCite entered into a license agreement with Novellus Therapeutics Limited, whereby NoveCite acquired an exclusive, worldwide license, with the right to sublicense, to develop and commercialize a stem cell therapy based on Novellus's patented technology for the treatment of acute pneumonitis of any etiology in which inflammation is a major agent in humans. Upon execution of the license agreement, NoveCite paid $5,000,000 to Novellus and issued Novellus shares of Novecite's common stock representing 25% of NoveCite's outstanding equity. We own the other 75% of NoveCite's outstanding equity.

In July 2021, Novellus was acquired by Brooklyn ImmunoTherapeutics and the NoveCite license was assumed by Brooklyn with all original terms and conditions. In October 2021, Brooklyn changed its name to Eterna Therapeutics Inc. ("Eterna").

As part of the Novellus and Brooklyn merger transaction, the 25% non-dilutive position per the subscription agreement between Novellus and NoveCite was removed.

Under the license agreement, NoveCite is obligated to pay Eterna up to an aggregate of $51,000,000 in regulatory and developmental milestone payments. NoveCite also must pay a royalty equal to a mid-teens percentage of net sales, commencing upon the first commercial sale of a licensed product. This royalty is subject to downward adjustment on a product-by-product and country-by-country basis to a mid-single digit percentage (within a range of 4% to 8%) of net sales in any country in the event of the expiration of the last valid patent claim or if no valid patent claim exists in that country. The royalty will end on the earlier of (i) date on which a biosimilar product is first marketed, sold, or distributed by Eterna or any third party in the applicable country or (ii) the 10-year anniversary of the date of expiration of the last-to-expire valid patent claim in that country. In the case of a country where no licensed patent ever exists, the royalty will end on the later of (i) the date of expiry of such licensed product's regulatory exclusivity and (ii) the 10-year anniversary of the date of the first commercial sale of the licensed product in the applicable country. In addition, NoveCite will pay to Eterna an amount equal to a mid-twenties percentage of any sublicensee fees it receives.

Under the terms of the license agreement, in the event that Eterna receives any revenue involving the original cell line included in the licensed technology, then Eterna shall remit to NoveCite 50% of such revenue.

LYMPHIR - In September 2021, the Company entered into an asset purchase agreement with Dr. Reddy's and a license agreement with Eisai to acquire an exclusive license of E7777 (denileukin diftitox), an oncology immunotherapy for the treatment of CTCL, a rare form of non-Hodgkin lymphoma. Citius Pharma assigned these agreements to Citius Acquisition Corp. effective April 1, 2022. We renamed E7777 as I/ONTAK and also obtained the trade name LYMPHIR^TM for the product. Denileukin diftitox is referred to in this report as E7777, I/ONTAK or LYMPHIR, depending on the period of time and context that is being discussed.

Under the terms of these agreements, Citius Pharma acquired Dr. Reddy's exclusive license of E7777 from Eisai and other related assets owned by Dr. Reddy's (which are now owned by Citius Oncology). The exclusive license, through Citius Oncology, includes rights to develop and commercialize E7777 in all markets except for Japan and certain parts of Asia. Eisai retains exclusive development and marketing rights for the agent in Japan, China, Korea, Taiwan, Hong Kong, Macau, Indonesia, Thailand, Malaysia, Brunei, Singapore, India, Pakistan, Sri Lanka, Philippines, Vietnam, Myanmar, Cambodia, Laos, Afghanistan, Bangladesh, Bhutan, Nepal, Mongolia, and Papua New Guinea. Citius Pharma paid Dr. Reddy's a $40 million upfront payment which represents the acquisition date fair value of the in-process research and development acquired from Dr. Reddy's. Dr. Reddy's is entitled to up to $40 million in development milestone payments related to CTCL approvals in the U.S. and other markets, up to $70 million in development milestones for additional indications, as well as commercial milestone payments and low double-digit tiered royalties on net product sales (within a range of 10% to 15%), and up to $300 million for commercial sales milestones. Citius Oncology also must pay on a fiscal quarter basis tiered royalties equal to low double-digit percentages of net product sales (within a range of 10% to 15%). The royalties will end on the earlier of (i) the 15-year anniversary of the first commercial sale of the latest indication that received regulatory approval in the applicable country and (ii) the date on which a biosimilar product results in the reduction of net sales in the applicable product by 50% in two consecutive quarters, as compared to the four quarters prior to the first commercial sale of the biosimilar product. Citius Oncology will also pay Dr. Reddy's an amount equal to a low-thirties percentage of any sublicense upfront consideration or milestone payments (or the like) received by us and the greater of (i) a low-thirties percentage of any sublicensee sales-based royalties or (ii) a mid-single digit percentage of such licensee's net sales. Citius Pharma is a guarantor of Citius Oncology's payment obligations under these agreements.

At the time of the FDA approval for LYMPHIR, a $27.5 million milestone payment became payable to Dr. Reddy's under the terms of the asset purchase agreement for which a balance of $17.65 million remains due as of March 31, 2026. Dr. Reddy's agreed to a partial deferral without penalty of this milestone payment.

Under the license agreement, Eisai was due a $5.9 million milestone payment, upon FDA approval, and additional commercial milestone payments related to the achievement of net product sales thresholds and an aggregate of up to $22 million related to the achievement of net product sales thresholds. We were also required to reimburse Eisai for up to $2.65 million of its costs to complete the Phase 3 pivotal clinical trial for LYMPHIR for the CTCL indication and reimburse Eisai for all reasonable costs associated with the preparation of a BLA for LYMPHIR. Eisai was responsible for completing the CTCL clinical trial, and CMC activities through the filing of the BLA for LYMPHIR with the FDA. We are responsible for development costs associated with potential additional indications.

On March 28, 2025, Citius Oncology and Eisai entered into a letter agreement that amended the license agreement to provide for a payment schedule to Eisai for the milestone payment and certain unpaid invoices. We agreed to pay Eisai $2,535,318 on July 15, 2025, $2,350,000 on the 15^th of each of the subsequent four months, and make a final payment of $2,197,892 on or before December 15, 2025, in each case with interest on each obligation from its original due date through the date of payment at the rate of 2% per annum. During the six months ended March 31, 2026, we recorded $78,872 in interest expense under the agreement. The parties released each other from any and all claims, losses, damages, costs and expenses that arise from or related to our failure to pay the milestone payment or the other incurred costs under the license agreement except for any claims arising out of a breach of the letter agreement. All other terms of the license agreement remain in full force and effect. On December 15, 2025, we paid Eisai the balance of the outstanding milestone approval fee and accumulated interest on the license fee. At March 31, 2026, we owe Eisai approximately $6.3 million for certain other unpaid invoices.

The term of the license agreement will continue until the 10-year anniversary of the first commercial sale on a country-by-country basis. The first commercial sale in the United States occurred in December 2025. The term of the license may be extended for additional 10-year periods for all countries in the territory by notifying Eisai and paying an extension fee equal to $10 million. Either party may terminate the license agreement upon written notice if the other party is in material breach of the agreement, subject to cure within the designated time periods. Either party also may terminate the license agreement immediately upon written notice if the other party files for bankruptcy or takes related actions or is unable to pay its debts as they become due. Additionally, either party will have the right to terminate the agreement if the other party directly or indirectly challenges the patentability, enforceability or validity of any licensed patent.

Under the purchase agreement with Dr. Reddy's, we are required to (i) use commercially reasonable efforts to make commercially available products in the CTCL indication, peripheral T-cell lymphoma indication and immuno-oncology indication, (ii) initiate two investigator initiated immuno-oncology trials (both of which have been initiated), (iii) use commercially reasonable efforts to achieve each of the approval milestones, and (iv) to complete each specified immuno-oncology investigator trial on or before the four-year anniversary of the effective date of the definitive agreement. Additionally, we are required to commercially launch a product in a territory within six months of receiving regulatory approval for such product in each such jurisdiction; though approved in August 2024, Dr. Reddy's waived the six-month requirement and the launch of LYMPHIR in December 2025 satisfied this requirement in the U.S.

Recent Events

Commercial Launch Activities

On March 31, 2026, Citius Oncology provided an update on the U.S. commercial launch of LYMPHIR, highlighting continued adoption across leading oncology centers, broad payer coverage progress, and advancing investigator-led clinical studies. Citius Oncology expects continued expansion in prescribing activity, together with further clinical validation through ongoing investigator-led studies. These trends support LYMPHIR's potential not only for continued integration in the CTCL treatment landscape, but also its potential as a part of a combination immunotherapy regimen in other cancers.

Key Early Launch Metrics:

●

Growth in orders from target institutions since launch, with initial accounts placing repeat orders;

●

Strong institutional uptake, with 83% of target accounts having added or actively progressing LYMPHIR through formulary review;

●

Broad and expanding market access with 135 health plans representing 80% of covered lives, secured and reimbursement systems established;

●

No reported reimbursement denials or prior authorization barriers;

●

Increasing demand for product education;

●

Initial penetration into community infusion centers underway with patients beginning to transition from larger cancer centers;

●

Commercial buildout proceeding, with field team onboarding and expansion in progress with our contracted sales organization; and,

●

Commercial supply remains well positioned to support anticipated U.S. demand, and international expansion.

On April 29, 2026, Citius Oncology announced the initial shipment of LYMPHIR to Europe through a regional distribution partner, marking an important milestone in expanding access to the therapy for patients outside the US. LYMPHIR will be made available to eligible patients through Named Patient Programs in accordance with local regulations in each country. The initiation of European distribution represents a strategic step in Citius Oncology's effort to extend access to LYMPHIR.

US Distribution Agreements

In 2025, Citius Oncology executed three service agreements with U.S. pharmaceutical specialty distributors who are the customers and who distribute LYMPHIR to healthcare organizations, which include academic centers, community oncology practices, as well as infusion centers. The transaction price for gross product revenues under these customer specialty distributor agreements are based on the contractually stated wholesale acquisition cost. The transaction price is reduced for variable considerations, including product returns, chargebacks, co-payment assistance, and other gross-to-net adjustments, which are reasonably estimated by Citius Oncology and constrained to amounts that are probable not to result in a significant revenue reversal. As LYMPHIR is a newly launched product, any reasonable estimates made by Citius Oncology regarding certain gross-to-net adjustments will result from certain information, such as inventory held by distributors, market data or comparable products, until sufficient historical data becomes available.

International Distribution Agreements

On October 7, 2025, Citius Oncology entered into an exclusive distribution agreement with Integris Pharma S.A., headquartered in Athens, Greece to make LYMPHIR available to eligible patients through country-specific Named Patient Programs ("NPPs"). The partnership covers Greece, Cyprus, Malta, Bulgaria, Romania, Croatia, Serbia, Albania, Bosnia Herzegovina, Kosovo, Montenegro and North Macedonia. NPPs are formally recognized pathways designed to give patients earlier access to promising new medicines in advance of full marketing authorization and commercial availability in markets outside the U.S. Under these programs, a treating physician may request a therapy for an individual patient when no adequate approved alternatives exist. In doing so, NPPs bridge a critical gap between the completion of clinical trials in each region and broad market introduction, ensuring that patients with serious illnesses are not left waiting for life-extending innovations. These programs provide access, where permitted by local law, and do not constitute commercial approval of LYMPHIR outside the U.S.

On December 4, 2025, Citius Oncology announced an exclusive distribution agreement with Er-Kim İlaç Sanayi ve Ticaret A.Ş. ("Er-Kim"), a leading pharmaceutical distributor based in Turkey, for LYMPHIR. Under the agreement, Er-Kim will be the exclusive distributor of LYMPHIR in Turkey and key Gulf Cooperation Council (GCC) countries, including Bahrain, Qatar, Oman, Kuwait, Saudi Arabia, and the United Arab Emirates.

On February11, 2026, Citius Oncology announced an exclusive distribution agreement with Uniphar ("Uniphar"), a leading international healthcare services company, to support access to LYMPHIR. Under the agreement, Uniphar will serve as Citius Oncology's uexclusive distribution partner in designated international territories in Western and stern Europe. Citius Oncology will supply finished product and provide ongoing support in accordance with the agreement. LYMPHIR is not approved for commercial use outside the U.S. and, will be provided solely through country-specific managed access programs, which do not constitute marketing authorization or a commercial launch.

Investigator Initiated Trials

On March 4, 2026, Citius Oncology announced positive topline safety and efficacy results from an investigator-initiated Phase 1 trial evaluating LYMPHIR administered prior to commercial CD19 directed CAR T therapy in patients with high risk relapsed or refractory diffuse large B cell lymphoma (DLBCL).

On March 10, 2026, Citius Oncology announced positive topline results from a completed investigator-initiated Phase 1 clinical trial conducted by University of Pittsburgh investigators. This study evaluated the direct T-regulatory (Treg) cell depletion activity of LYMPHIR in combination with the PD-1 immune checkpoint inhibitor pembrolizumab (KEYTRUDA^®) in patients with recurrent or refractory gynecologic cancers, including ovarian and endometrial malignancies.

Discussions are ongoing regarding next-stage development with respect to both investigator-initiated trials.

RESULTS OF OPERATIONS

Three months ended March 31, 2026 compared with the Three months ended March 31, 2025

		Three Months Ended March 31, 2026				Three Months Ended March 31, 2025
Revenue		$	1,667,298				-
Cost of revenues			(328,878	)			-
Gross profit			1,338,420				-
Operating expenses:
Research and development			1,633,518				3,766,525
Amortization of in-process research and development			1,720,312				-
General and administrative			26,391,101				4,792,122
Stock-based compensation - general and administrative			3,788,275				2,702,031
Total operating expenses			33,533,206				11,260,678
Operating loss			(32,194,786	)			(11,260,678	)
Interest income			53,584				13,413
Gain on sale of New Jersey net operating losses			3,833,277				-
Interest expense			(33,031	)			-
Loss before income taxes			(28,340,956	)			(11,247,265	)
Income tax expense (benefit)			(231,210	)			264,240
Net loss		$	(28,109,746	)		$	(11,511,505	)

Revenues

Product revenues for the three months ended March 31, 2026 were $1,667,298, as Citius Oncology began commercial distribution of LYMPHIR in December 2025. Gross profit on product revenues for the three months ended March 31, 2026 was approximately 80%.

We believe that revenues will increase in the future as LYMPHIR gains market acceptance and have already seen initial accounts placing repeat orders, and on April 29, 2026, Citius Oncology announced its initial shipment to Europe.

Research and Development Expenses

For the three months ended March 31, 2026, research and development expenses were $1,633,518, as compared to $3,766,525 during the three months ended March 31, 2025, a decrease of $2,133,007.

Research and development costs for Mino-Lok decreased by $56,092 to $66,478 for the three months ended March 31, 2026, as compared to $122,570 for the three months ended March 31, 2025 primarily related to lower costs related to Mino-Lok combination studies. In November 2024, the Company held a Type C meeting with the FDA to discuss the results of the Phase 3 study and to obtain the FDA's view on development plans for Mino-Lok. The FDA provided clear, constructive, and actionable guidance during the discussion, underscoring a pathway to support a future New Drug Application (NDA) submission for Mino-Lok.

Research and development costs for Halo-Lido were $1,750 for the three months ended March 31, 2026, as compared to no costs for the three months ended March 31, 2025. The Phase 2 study was completed in April 2023. Citius subsequently met with the FDA for an end of Phase 2 meeting to discuss next steps in the clinical development program.

Research and development costs for LYMPHIR decreased by $2,085,664 to $1,555,815 during the three months ended March 31, 2026, as compared to $3,641,479 for the three months ended March 31, 2025 was primarily related to expense recognized in the three months ended March 31, 2025 for a pre-license inspection batch of LYMPHIR previously manufactured.

Amortization of in-process research and development

Amortization of in-process research and development commenced upon revenue generation in December 2025. For the three months ended March 31, 2026, amortization was $1,720,312. In-process research and development is being amortized on a straight-line basis over the remaining FDA product exclusivity period, which ends in August 2036.

General and Administrative Expenses

For the three months ended March 31, 2026, general and administrative expenses were $26,391,101, as compared to $4,792,122 during the three months ended March 31, 2025. General and administrative expenses increased by $21,598,979 in comparison with the prior period. The increase was primarily related to a notice of termination from a contract manufacturing organization received in February 2026. In March 2026, we recorded a contract cancellation fee of $19,733,307. Other general and administrative expenses consist primarily of compensation costs, professional fees for legal, regulatory, accounting, and corporate development services, and investor relations expenses.

Stock-based Compensation Expense

For the three months ended March 31, 2026, stock-based compensation was $3,788,275 as compared to $2,702,031 for the three months ended March 31, 2025. Stock-based compensation increased by $1,086,244 primarily due to the Citius Oncology restricted stock awards granted in September 2025.

Stock-based compensation expense for the three months ended March 31, 2026, includes $261,565 for Citius Pharma options, $1,858,443 for Citius Oncology options and $1,668,267 for Citius Oncology restricted stock awards. Stock-based compensation expense for the three months ended March 31, 2025 includes $613,459 for Citius Pharma options and $2,088,572 for Citius Oncology options.

Other Income (Expense)

For the three months ended March 31, 2026, interest income was $53,584, as compared to interest income of $13,413 for the three months ended March 31, 2025. We have invested the remaining proceeds of our equity offerings in money market accounts.

We recognized a gain of $3,833,277 for the three months ended March 31, 2026, in connection with the sale of certain New Jersey income tax net operating losses to a third party under the New Jersey Technology Business Tax Certificate Transfer Program.

For the three months ended March 31, 2026, interest expense was $33,031, as compared to $0 for the three months ended March 31, 2025 all related to the March 28, 2025 letter agreement with Eisai.

Income Taxes

The Company recorded a deferred income tax benefit of $231,210 in the three months ended March 31, 2026 and a deferred income tax expense of $264,240 in the three months ended March 31, 2025. Deferred income tax expense or benefit is related to the difference in amortization for taxable purposes of our in-process research and development asset and the financial statement amortization.

Net Loss

For the three months ended March 31, 2026, we incurred a net loss of $28,109,746, as compared to a net loss of $11,511,505 for the three months ended March 31, 2025. The increase of $16,598,241 in the net loss was due to the increase of $22,272,528 in operating expenses offset by the increase in gross profit of $1,338,420, the increase in other income of $3,840,417 and the decrease in income tax expense of $495,450.

Six months ended March 31, 2026 compared with the six months ended March 31, 2025

		Six Months Ended March 31, 2026				Six Months Ended March 31, 2025
Revenue		$	5,611,409				-
Cost of revenues			(1,118,086	)			-
Gross profit			4,493,323				-
Operating expenses:
Research and development			3,233,237				5,893,563
Amortization of in-process research and development			2,293,750				-
General and administrative			32,111,828				10,179,874
Stock-based compensation - general and administrative			8,068,502				5,226,855
Total operating expenses			45,707,317				21,300,292
Operating loss			(41,213,994	)			(21,300,292	)
Interest income			98,681				36,021
Gain on sale of New Jersey net operating losses			3,833,277				-
Interest expense			(188,569	)			-
Loss before income taxes			(37,470,605	)			(21,264,271	)
Income tax expense			33,030				528,480
Net loss		$	(37,503,635	)		$	(21,792,751	)

Revenues

Product revenues for the six months ended March 31, 2026 were $5,611,409, as Citius Oncology began commercial distribution of LYMPHIR in December 2025. Gross profit on product revenues for the six months ended March 31, 2026 was approximately 80%.

We believe that revenues will increase in the future as LYMPHIR gains market acceptance as Citius Oncology has already seen initial accounts placing repeat orders, and on April 29, 2026, Citius Oncology announced our initial shipment to Europe.

Research and Development Expenses

For the six months ended March 31, 2026, research and development expenses were $3,233,237, as compared to $5,893,563 during the six months ended March 31, 2025, a decrease of $2,660,326.

Research and development costs for Mino-Lok decreased by $360,278 to $147,308 for the six months ended March 31, 2026, as compared to $507,586 for the six months ended March 31, 2025, due primarily to decreased costs for the Mino-Lok combination studies, as well as decreased development related manufacturing costs. In November 2024, the Company held a Type C meeting with the FDA to discuss the results of the Phase 3 study and to obtain the FDA's view on development plans for Mino-Lok. The FDA provided clear, constructive, and actionable guidance during the discussion, underscoring a pathway to support a future New Drug Application (NDA) submission for Mino-Lok. Update?

Research and development costs for Halo-Lido decreased by $6,627 to $4,069 for the six months ended March 31, 2026, as compared to $10,696 for the six months ended March 31, 2025. The Phase 2 study was completed in April 2023. Citius subsequently met with the FDA for an end of Phase 2 meeting to discuss next steps in the clinical development program.

Research and development costs for LYMPHIR decreased by $2,303,609 to $3,065,410 during the six months ended March 31, 2026, as compared to $5,369,019 for the six months ended March 31, 2025, was primarily related to expense recognized in the three months ended March 31, 2025 for a pre-license inspection batch LYMPHIR previously manufactured.

Amortization of in-process research and development

Amortization of in-process research and development commenced upon revenue generation by LYMPHIR in December 2025. For the six months ended March 31, 2026 amortization was $2,293,750. In-process research and development is being amortized on a straight-line basis over the remaining FDA product exclusivity period which ends in August 2036.

General and Administrative Expenses

For the six months ended March 31, 2026, general and administrative expenses were $32,111,828, as compared to $10,179,874 during the six months ended March 31, 2025. General and administrative expenses increased by $21,931.954 in comparison with the prior period. The increase of $21,931,954 was primarily related to a notice of termination from a contract manufacturing organization received in February 2026. In March 2026, we recorded a contract cancellation fee of $19,733,307. Other general and administrative expenses consist primarily of compensation costs, professional fees for legal, regulatory, accounting, and corporate development services, and investor relations expenses.

Stock-based Compensation Expense

Stock-based compensation expense under all plans for the six months ended March 31, 2026 and 2025 was $8,068,502 (including $585,742 for Citius Pharma options, $4,110,478 for Citius Oncology options and $3,372,282 for Citius Oncology restricted stock unit awards) and $5,226,825 (including $1,329,775 for Citius Pharma options and $3,897,050 for Citius Oncology options), respectively.

Stock-based compensation expense for the six months ended March 31, 2026 increased by $2,841,647 in comparison to the prior period primarily due to the Citius Oncology restricted stock unit awards granted in September 2025.

Other Income (Expense)

For the six months ended March 31, 2026, interest income was $98,681, as compared to interest income of $36,021 for the six months ended March 31, 2025. We have invested the remaining proceeds of our equity offerings in money market accounts.

We recognized a gain of $3,833,277 for the six months ended March 31, 2026, in connection with the sale of certain New Jersey income tax net operating losses to a third party under the New Jersey Technology Business Tax Certificate Transfer Program.

For the six months ended March 31, 2026, interest expense was $188,569, as compared to $0 for the six months ended March 31, 2025. For the six months ended March 31, 2026, interest expense of $78,872 was related to the March 28, 2025 letter agreement with Eisai and interest expense on the note payable, including the fair value of the warrant issued to the lender was $109,697.

Income Taxes

The Company recorded a deferred income tax expense of $33,030 for the six months ended March 31, 2026 and a deferred income tax expense of $528,480 for the six months ended March 31, 2025. Deferred income tax expense is related to the amortization for taxable purposes of our in-process research and development asset offset by the financial statement amortization of our in-process research and development asset.

Net Loss

For the six months ended March 31, 2026, we incurred a net loss of $37,503,635, as compared to a net loss of $21,792,751 for the six months ended March 31, 2025. The increase of $15,710,884 in the net loss was due to the increase of $24,407,025 in operating expenses offset by the increase in gross profit of $4,493,323, the increase in other income of $3,707,368 and the decrease in income tax expense of $495,450.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Working Capital

We have incurred operating losses since inception and incurred a net loss of approximately $37.5 million for the six months ended March 31, 2026. At March 31, 2026, we had an accumulated deficit of approximately $268.3 million. At March 31, 2026, we had approximately $4.6 million in cash and a negative working capital of approximately $23.3 million. Our net cash used in operations during the six months ended March 31, 2026 was approximately $14.3 million. Our primary source of cash flow since inception has been from financing activities. We have had limited revenue from sales of LYMPHIR, which commenced in December 2025.

On April 24, 2026, Citius Pharma closed a registered direct offering for the sale of 5,076,143 shares of common stock (or pre-funded warrants in lieu thereof) at a purchase price of $0.985 per share. The Company also issued immediately exercisable unregistered warrants to purchase 5,076,143 shares of common stock at $0.86 per share. Gross proceeds were approximately $5.0 million, before deducting the placement agent fees and expenses.

On May 5, 2026, Citius Oncology, entered into an agreement with the holder of certain existing warrants to purchase 12,777,778 shares of Citius Oncology common stock, which consists of all of the 6,818,182 shares underlying warrants originally issued on July 16, 2025, all of the 5,142,858 shares underlying warrants originally issued on September 10, 2025, and 816,738 shares underlying warrants originally issued December 10, 2025, each with an exercise price of $1.09 per share. As an inducement to the holder for exercising the warrants in cash at a reduced exercise price of $0.90 per share, Citius Oncology issued the holder new warrants to purchase up to an aggregate of 25,555,556 shares of Citius Oncology common stock, which have similar terms to the exercised warrants and an exercise price of $0.90. Gross proceeds were approximately $11.5 million, before deducting the placement agent fees and expenses.

On May 5, 2026 Citius Oncology, entered into a Loan Agreement that makes available term loans in an aggregate principal amount of up to $25.0 million (collectively, the "Loans"), with (i) $10.0 million to be funded on May 6, 2026, (ii) up to $7.0 million beginning on the later of (A) the date on which certain net revenue and liquidity milestones are achieved and (B) October 1, 2026, and continuing through December 31, 2026, and (iii) up to $8.0 million beginning on the later of (A) the date on which certain additional net revenue milestones are achieved and one or more Tranche 2 Loans have been drawn and (B) January 1, 2027, and continuing through March 31, 2027.

The Loans bear interest at an annual rate equal to the greater of (x) prime plus 6.00% or 12.75%. and mature on November 1, 2029.

In order to satisfy our outstanding milestone payment obligations, as well as meet minimum purchase commitments under our agreements for the manufacture and supply of our drug product, in addition to generating income from the sale of LYMPHIR, we need to obtain substantial additional financing and cannot be sure that any additional funding will be available on terms favorable to us, or at all. As of March 31, 2026, our outstanding milestone payments and purchase commitments include:

●

On March 28, 2025, we entered into a letter agreement to pay Eisai $2,535,318 on or before July 15, 2025, and $2,350,000 thereafter on the 15th of each of the next four months, and make a final payment of $2,197,892 on or before December 15, 2025, in each case with interest on each obligation from its original due date at the rate of 2% per annum. As of March 31, 2026, we have paid the milestone in full and owe a balance of approximately $6.3 million to Eisai for certain other invoices.

●

At the time of the FDA approval for LYMPHIR, a $27.5 million milestone payment became payable to Dr. Reddy's of which a balance of $17.65 million remains due as of March 31, 2026. Dr. Reddy's has agreed to a partial deferral without penalty of this milestone payment.

●

Citius Oncology had previously entered into an agreement with a contract manufacturing organization ("CMO") for the manufacture and supply of bulk drug substance ("BDS") with the agreement continuing through calendar year 2026. The agreement was terminated effective February 2026, by the CMO due to the breach of payment obligations by the Citius Oncology. Termination fees associated with this are approximately $20.1 million consisting of $17.1 million of charges associated with manufacturing which was previously committed in 2025 and 2026 but not produced, as well as $1.2 million of un-invoiced but incurred charges related to previous manufactured batches and $1.8 million of interest and other charges. These fees are included in General and Administrative Expense for the quarter ended March 31, 2026. Separately, in March 2026, the CMO gave notice that it made a decision to terminate all production at the current site related to microbial manufacturing and decommission the associated manufacturing lines. In March 2026 and in connection with the notice of termination from the CMO, we recorded a contract cancellation fee of $19,733,307 net of invoices already included in accounts payable. Citius Oncology has been evaluating new BDS suppliers and anticipates entering into a letter of intent with a new CMO by June 30, 2026 with a subsequent master services agreement to follow. At this time, based on stock on hand and availability of alternate suppliers, we anticipate no interruption in commercial supply for the foreseeable future.

●

As of March 31, 2026, we also have commercial supply agreements with two other vendors for the completion and packaging of finished drug products. Minimum purchase commitments under these two agreements are approximately $4.0 million consisting of purchase commitment obligations of $2.2 million in calendar years 2026 and $1.8 million in 2027.

After giving effect to our April 24, 2026 registered direct offering and the Citius Oncology May 5, 2026 warrant exercise and loan agreement, we expect that we and Citius Oncology collectively will have sufficient funds to continue our operations through November 2026. We will need to raise additional capital in the future to support our operations beyond November 2026. There is no assurance, however, that we will be successful in raising needed capital or that the proceeds will be received in an amount or in a timely manner to support our operations.

Investing Activities

During the six months ended March 31, 2026, we paid the final $2,900,000 due to Eisai in connection with the LYMPHIR approval milestone and paid $2,100,000 in connection with the milestone payment due to Dr. Reddy's. At March 31, 2026, we owe Dr. Reddy's $17,650,000 representing the balance of the approval milestone.

Inflation

Our management believes that inflation has not had a material effect on our results of operations.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recorded during the reporting periods. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

Our critical accounting policies and use of estimates as discussed in the footnotes to the condensed consolidated financial statements included within this Form 10-Q should also be read in conjunction with, the annual consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 2025, filed with the SEC on December 23, 2025, as amended January 28, 2026.