CVM: The ramp-up of Cel-Sci's global Phase III Multikine trial, which will measure the product's effectiveness in treating head and neck cancer, has been well documented over a number of press releases since the trial began late last year, but the recently-filed 10-Q puts another item of interest to rest.
A lawsuit filed by a group of hedge fund managers who felt that they got the short end of the stick in regards to a financing deal with CVM has been settled.
The settlement, according to the 10-Q, included a $3 million cash payment and an additional $9 million in securities. The relevant details, as copied from the filing, follow:
"CEL-SCI agreed to make a $3 million cash payment and issue $9 million of securities to the plaintiffs. These securities consist of senior secured convertible promissory notes with an aggregate principal amount of $4.95 million and shares of redeemable Series A Convertible Preferred Stock with an aggregate stated value of $4.05 million. The $3 million cash payment will be made at the closing under the Settlement Agreement. The $9 million of securities will be retired through nine equal monthly installment payments of approximately $1 million each, plus interest on the notes and dividends on the shares at the rate of 8% per annum, with payments beginning on June 1, 2011 (the month of October requires no payment) and ending on March 1, 2012. As these installments of the principal amount of the notes and the stated value of the preferred shares are paid down, or as the notes or the preferred shares are converted by the holders into common stock, the initial $9 million due (plus interest and dividends) will be proportionately reduced until the notes are fully paid or converted and the preferred shares are fully redeemed or converted. CEL-SCI has pledged all of its assets as collateral for the repayment of these obligations. While the notes and preferred shares are outstanding, CEL-SCI is generally prohibited from paying dividends, incurring new debt or making any payments (other than interest) on existing debt, and is subject to certain restrictions on the transfer of its assets. The $12 million has been accrued for and included in the March 31, 2011 consolidated financial statements."
Also of note, the company maintains its stance that the lawsuit is without merit, but finds that it's in the best interest of shareholders (read: "in the best interests of the company") to put the lawsuit to rest and concentrate solely on the development of the pipeline.
The settlement is for far less than what the lawsuit was looking for, monetarily, and seems a fair enough play, given that the hedgies can make out even better with a higher CVM share price.
Without the lawsuit to worry about, resources will be concentrated back to Multikine - and maybe LEAPS - but investors will now be looking to see from where the much-needed funding will originate.
It's all but a given that significant funds will be needed to complete this world-wide Phase III.
Over the long run, CVM is a no-brainer at these prices IF Multikine proves to work as advertised, but expect some volatility over the short term while speculation about financing plays out.
Still a decent "next DNDN' play, in my opinion, and still in 'accumulation' zone, for those wanting to play the potential of Multikine.
In additional news, CVM also announced that the trial has commenced in Canada, after announcing last month that the Canadian regulators have approved the trial.
It's been a dull ride for Cel-Sci since the hype surrounding LEAPS and H1N1, but it's these 'below the radar' plays that have the potential to move quickly, even if they do retreat back to previously-traded levels shortly thereafter.
Worth keeping an eye on.
Disclosure: Long CVM.
