Quarterly Report II 16/17

September 2016 – February 2017, Diamyd Medical AB (publ), Fiscal year 2016/2017

Reporting period, December 1, 2016 – February 28, 2017

• Net result amounted to MSEK -6.4 (-4.7)
• Net result per share amounted to SEK -0.2 (-0.2)
• Cash flow from operating activities amounted to MSEK -5.9 (-4.4)
• Liquid assets and short term investments amounted at the end of the period to MSEK 20.6 (20.4)

Half year, September 1, 2016 – February 28, 2017

• Net result amounted to MSEK -10.9 (-9.0)
• Net result per share amounted to SEK -0.4 (-0.2)
• Cash flow from operating activities amounted to MSEK -10.5 (-9.2)

Significant events during the reporting period

• Preliminary interim results from intralymphatic trial with Diamyd® published in the New England Journal of Medicine
• GABA-specialist to the Board of Diamyd Medical
• Last participant has completed last visit in a five-year prevention trial with Diamyd®
• GABA manufacturing process scaled up for GMP production

Significant events after the reporting period

• Swine influenza vaccination might have had an impact on treatment with the diabetes vaccine Diamyd® in Phase III clinical trial
• 30 month results from DIABGAD-1 support effect after partial remission phase
• Diamyd Medical takes decisive step to market and announces rights issue
• Diamyd Medical invests MSEK 1.5 in NextCell Pharma for development of stem cell therapies

About Diamyd Medical
Diamyd Medical is dedicated to finding a cure for diabetes and other serious inflammatory diseases through pharmaceutical development and investments in stem cell and medical technology. Diamyd Medical develops the diabetes vaccine Diamyd®, an antigen-specific immunotherapy based on the exclusively licensed GAD-molecule. Five clinical trials are ongoing with Diamyd®. An exclusive license comprising the therapeutic use of GABA in diabetes and inflammatory diseases constitutes alongside with the diabetes vaccine a key asset and the Company is developing a proprietary GABA drug product. Diamyd Medical is one of the major shareholders in the stem cell company NextCell Pharma AB and has holdings in the medtech company Companion Medical, Inc., San Diego, USA and in the gene therapy company Periphagen, Inc., Pittsburgh, USA. Diamyd Medical’s B-share is traded on Nasdaq First North under the ticker DMYD B. Remium Nordic AB is the Company’s Certified Adviser. Further information is available on the Company’s website: www.diamyd.com.

CEO comments

Dear Shareholders and Readers,

We recently decided to announce an aggressive rights issue of 68 MSEK to conduct a pivotal phase II trial, DIAGNODE-2, based on intralymphatic administration of Diamyd®. The decision is based on the very positive preliminary results from the ongoing investigator initiated DIAGNODE-1 trial, also recently published in the New England Journal of Medicine, as well as on the previously published meta- analysis of previous clinical trials with our vaccine showing that Diamyd® with a 98% likelihood has a positive biological effect. The decision is subject to approval by the Extraordinary General Meeting to be held on April 19th.

Our discussions with major multinational companies continue, and the established path forward with our GAD and GABA projects has created a significantly stronger negotiation position. At the Bio Europe Spring meeting in Barcelona in March, where biotech and pharmaceutical companies met, we received positive feedback about the recently published results and the decision on the company's focus ahead - further proof that our strategy is right. There is an increasing interest from pharmaceutical companies with strong finances looking for licensing opportunities to fill their pipelines.

30-month results were presented in late March from the investigator initiated trial DIABGAD-1 led by Professor Johnny Ludvigsson at Linköping University. In this trial, Diamyd® was administered subcutaneously and combined with vitamin D and ibuprofen. Based on the results, the combination of vitamin D and ibuprofen does not seem to give a significant enhancement of the effect in newly diagnosed patients when the vaccine is administered subcutaneously. Meanwhile, the significant results after a possible remission phase are very interesting and will be further analyzed. The diabetes vaccine Diamyd® has been tested in pilot trials in various doses, and with different modes of administration (DIAGNODE -1 study), together with vitamin D, ibuprofen (DIABGAD-1 trial), and with TNF-alpha inhibitors (EDCR trial). Taken together the DIAGNODE-1 trial clearly shows the most promising results. Admittedly, the highly interesting trial in Alabama with the combination of GABA + Diamyd® is still ongoing, but the results from DIAGNODE -1 are so promising that the company has decided to focus on intralymphatic administration in newly diagnosed patients with a new pivotal trial, DIAGNODE-2.

In late March, results were published in Diabetologia where researchers at Linköping University show that the Swine flu vaccination may have had a negative impact on the results of the European Phase III trial with Diamyd®, conducted between 2008 and 2011. It is well known that the swine flu vaccine has a strong effect on the immune response, and this effect may possibly have interfered with treatment with Diamyd®. New research on GABA has been published by Professor Daniel Kaufman at UCLA who is also a member of Diamyd Medical's Scientific and Medical Advisory Board. The study, published in Nature (http://www.nature.com/articles/s41598-017-00515-y) shows how GABA and positive allosteric modulators of GABA receptors stimulate growth of the insulin-producing beta cells. The results provide further support for GABA's role as a potentially transformative therapy in diabetes.

We have recently confirmed that the production of Diamyd®, which until 2015 was produced by a former manufacturer, has now successfully been transferred to our new partner. Newly produced study drug lasts until 2021. Production of our own GABA study drug proceeds per plan and has entered formulation development where the aim is to manufacture and evaluate a few variants before the final product is selected for clinical testing.

During the turn of the year, the patent application covering intralymphatic administration of antigen entered international investigation phase. Here we have chosen to apply for a wide geographical patent protection; in addition to the major pharmaceutical markets US, Europe and Japan, we have also submitted the patent application to China, Canada, Russia, Australia, South Africa, Israel and India. Approved claims will give us protection that extends to 2035.

Stockholm, April 5, 2017
Ulf Hannelius
President and CEO of Diamyd Medical AB (publ)

Significant events during the reporting period

Previously announced preliminary interim results from intralymphatic trial with Diamyd® published in the New England Journal of Medicine
An article by Professor Johnny Ludvigsson, Principal Investigator and sponsor of DIAGNODE-1, an intra-lymphatic pilot trial with Diamyd®, was published in the scientific journal New England Journal of Medicine. The article summarizes the preliminary interim results based on trial data from six patients who have been followed for at least six months, of which four have been followed for at least 15 months, which Diamyd Medical previously announced in a press release on October 24, 2016.

GABA-specialist to the Board of Diamyd Medical
Professor Torbjörn Bäckström, Umeå University, accepts an invitation from Diamyd Medical's nominating committee as affiliated member of the Board of Diamyd Medical, to be formally elected at the next general meeting.

Last participant has completed last visit in a five-year prevention trial with Diamyd®
The last participant has made its last visit after five years in a trial in which the diabetes vaccine Diamyd®is being tested as a treatment to delay or prevent that children at high risk for type 1 diabetes is presented with the disease. Results from the trial will be presented by Associate Professor, MD, Helena Elding Larsson, Principal Investigator and sponsor of the trial, at the diabetes conference American Diabetes Association (ADA), to be held in San Diego in June, 2017.

GABA manufacturing process to be scaled up for GMP-production
A first amount of GABA is produced and the manufacturing process is to be scaled up for GMP production. The Company also highlights that two recently published scientific articles support GABA's relevance in the treatment of diabetes.

Significant events after the reporting period

Swine influenza vaccination might have had an impact on treatment with the diabetes vaccine Diamyd® in Phase III clinical trial
A scientific article published in Diabetologia supports the notion that vaccination against influenza A (H1N1) 2009, commonly known as the Swine flu, might have had a negative impact on the outcome of the treatment with the diabetes vaccine Diamyd®in the European Phase III clinical trial conducted in 2008-2011. In the patient group receiving two doses of Diamyd®, there was greater preservation of residual insulin production when there was at least 150 days between the Swine flu vaccination and the first injection of Diamyd®.

30 month results from DIABGAD-1 support effect after partial remission phase
Results after 30 months of the investigator initiated pilot trial DIABGAD-1 show that treatment with the diabetes vaccine Diamyd®in combination with Vitamin D and ibuprofen has a good safety profile and no serious related side effects. With the entire trial period taken into account, no significant difference in the ability to produce insulin was seen between the patient groups receiving active and placebo treatment. However, after the initial period, (partial remission phase or honeymoon period), a significant positive clinical effect was seen in the group receiving active treatment compared with placebo, and the effect was largest in the group receiving a double dose of Diamyd®.

Diamyd Medical takes decisive step to market and announces rights issue
The Board of Diamyd Medical, subject to the approval of an Extraordinary General Meeting, has decided to issue new shares and warrants in the form of units with preferential rights for existing shareholders totaling about MSEK 68.8 before issuance costs. Upon full exercise of the warrants, the Company will raise an additional amount of approximately MSEK 44.7. The proceeds will mainly be used to conduct a new, pivotal follow-up Phase II trial, in which the diabetes vaccine Diamyd® will be administered directly to lymph nodes. 80 percent of the Rights issue is underwritten.

Diamyd Medical invests MSEK 1.5 in NextCell Pharma for development of stem cell therapies
Diamyd Medical today announced that the Company will invest approximately MSEK 1.5 in NextCell Pharma AB. The investment will be made in two steps, an immediate investment of MSEK 0.6, and MSEK 0.9 during a planned initial public offering of NextCell Pharma this summer. After the immediate investment, Diamyd Medical’s ownership in NextCell Pharma will amount to approximately 16%, and is expected to become approximately 10% after the public offering.

On-going clinical trials with Diamyd®
Type 1 diabetes is a devastating disease which requires daily treatment with insulin to sustain life. The importance of finding a cure should not be underestimated. The diabetes vaccine Diamyd® has been used in clinical studies with more than 1,000 patients and has shown a good safety profile. Subsequent development is focused on combination trials to enhance efficacy. Diamyd® is easy to administer in any clinical setting. The potential annual market is estimated to several billion dollars per year. Five researcher-initiated clinical trials are ongoing combining Diamyd® with various other immunomodulatory compounds; etanercept, vitamin D and GABA.

• DIAGNODE -1 – DIAMYD® IN LYMPH GLANDS IN COMBINATION WITH VITAMIN D

An open label trial, where Diamyd® is administered directly into lymph nodes in combination with treatment with vitamin D. The trial comprises fifteen patients between the ages of 12 and 30 newly diagnosed with type 1 diabetes, and will continue for a total of 30 months. The aim of the trial is to evaluate the safety of the combination treatment and the effect on the immune system and the patients’ insulin producing capacity. The trial is led by Professor Johnny Ludvigsson at Linköping University, Sweden. The first patient was included in the trial in February 2015.

• GABA/ DIAMYD® – COMBINING DIAMYD® WITH GABA

A placebo-controlled trial, where Diamyd®is being tested in combination with GABA. In accordance with agreement with Jansen Research & Development and JDRF the trial has expanded to comprise 95 patients between the ages of 4 and 18 recently diagnosed with type 1 diabetes. The trial will continue for a total of 12 months. The aim of the combination treatment is to preserve the body’s residual capacity to produce insulin. The trial is led by Dr. Alexandra Martin at the University of Alabama at Birmingham, USA. The first patient was included in the trial in March 2015.

• EDCR IIa – COMBINING DIAMYD® WITH ETANERCEPT AND VITAMIN D

An open label trial, where Diamyd®is combined with etanercept and vitamin D. The trial comprises 20 patients between the ages of 8 and 18 who have been newly diagnosed with type 1 diabetes, and will continue for a total of 30 months. The aim of the trial is to evaluate the safety of the combination treatment and the effect on the immune system and the patients’ insulin producing capacity. The trial is led by Professor Johnny Ludvigsson at Linköping University, Sweden. All patients were included in September 2016 and 6 month results are expected during the second quarter of 2017.

• DiAPREV-IT 1– DIAMYD®

A placebo-controlled trial, where Diamyd® is being tested in children at high risk of developing type 1 diabetes, meaning that they have been found to have an ongoing autoimmune process but do not yet have any clinical symptoms of diabetes. A total of 50 participants from the age of four have been enrolled in the trial, which has lasted for five years. The aim of the trial is to evaluate whether Diamyd® can delay or prevent the participants from presenting with type 1 diabetes. The trial is led by Dr. Helena Elding Larsson at Lund University, Sweden. Five year results are expected in June 2017.

• DiAPREV-IT 2 – COMBINING DIAMYD® WITH VITAMIN D

A placebo-controlled trial, where Diamyd® is being tested in combination with vitamin D in children at high risk of developing type 1 diabetes, meaning that they have been found to have an ongoing autoimmune process but do not yet have any clinical symptoms of diabetes. A total of 80 participants between the ages of 4 and 18 will be enrolled in the trial, which will last for five years. The aim of the trial is to evaluate whether Diamyd® can delay or prevent the participants from presenting with type 1 diabetes. The trial is led by Dr. Helena Elding Larsson at Lund University, Sweden. The first patient was included in March 2015.

*** The above is an excerpt from the report. To read the complete report, please visit www.diamyd.com, or see attached PDF ***

For more information, please contact:
Ulf Hannelius, President and CEO, phone: +46 736 35 42 41

Diamyd Medical AB (publ), Kungsgatan 29, SE-111 56 Stockholm, Sweden
Phone: +46 8 661 00 26 Fax: +46 8 661 63 68 E-mail: info@diamyd.com Reg. no: 556242-3797

This information is information that Diamyd Medical AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 08.30 CET on April 5, 2017.

Note: This document has been prepared in both Swedish and English. The Swedish version shall govern in case of differences between the two documents. The document contains certain statements about the Company’s operating environment and future performance. These statements should only be regarded as reflective of prevailing interpretations. No guarantees can be made that these statements are free from errors.

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