2nd Quarterly Report for Diamyd Medical AB (publ), Fiscal Year 2007/2008

(www.omxgroup.com ticker: DIAM B; www.otcqx.com ticker: DMYDY)

December 1, 2007 – February 29, 2008

• Financial position strengthened as fully subscribed direct placement brings in MSEK 72.3 (MUSD 12.3) in combination with a potential 99.1 MSEK (MUSD 16.8) in additional proceeds from exercisable warrants, after the reporting period.
• Approval from the US Food and Drug Administration (FDA) to start a Phase III clinical study with type 1 diabetes patients in the US, after the reporting period.
• Approval from the Swedish Medical Products Agency (MPA) to initiate a European Phase III clinical study with type 1 diabetes patients in Sweden, after the reporting period.
• FDA approval to start a Phase I clinical study in chronic pain.
• Completion of Phase II type 1 diabetes trial with Diamyd® diabetes vaccine shows long term efficacy at 30 months.
• Net sales for the 3 month period was SEK 673,000 (USD 109,165) compared to SEK 467,000 (USD 75,750) for the same period last year.
• The net loss for the 3 month period was MSEK -16.5 (MUSD -2.6) compared to MSEK -13.8 (MUSD -2.2) for the same period of last year.
• Liquid assets amounted to MSEK 39.2 (MUSD 6.3) as of February 29, 2008 compared to MSEK 95.8 (MUSD 15.5) as of February 29, 2007.
• Result per share after dilution was SEK -1.7 (USD -0.28) compared to SEK
-1.4 (USD -0.23) for the same period of last year.

CEO OVERVIEW
Taking over from former CEO, Anders Essen-Möller, is a real challenge and a fantastic opportunity. Mr Essen-Möller has built an amazing network of competent and engaged people including many of the most recognized diabetes specialists in the western world. I find also the Diamyd teams in Stockholm and Pittsburgh extremely engaged, active and competent.

This quarter has been a true break-through for Diamyd in scientific and regulatory achievements.

The US Food and Drug Administration (FDA) and the Swedish Medical Products Agency (MPA) have both reviewed our Phase II clinical data and found them to be supportive for Phase III clinical studies in type 1 diabetes. The purpose of the new studies is to confirm statistical significance of our Phase II results in a larger patient population.

We have also successfully moved our manufacturing of Drug Substance from Holland to US. Drugs from the two manufacturing sites have been characterized in detail and have shown to be identical, which was supported by the regulatory agencies.

In beginning of April we had our first Phase III Investigator’s Meeting in Linköping, Sweden. The meeting was chaired by Professor Ludvigsson, our Principal Investigator for the European study. All routines are now in place for the first 20 clinics to start the screening of patients for inclusion in the study. US and other countries in Europe are following close.

In the recently completed Phase II type 1 diabetes study a significant effect of the Diamyd® treatment was observed still 30 months after the first injection.

Within the next coming months we will also receive 5 years follow-up data from the first Phase II 47 patient LADA study. We are excited to compile this data and to see the result.
Additionally our first neurology product, NP2, has been approved by the FDA for initiation of a Phase I clinical trial in chronic pain. The trial will be designed as a dose-escalation study and is intended to test the safety of treatment with NP2.

Neurologix Inc. has recently, under our license agreement, received FDA approval to start a Phase II clinical trial for treatment of Parkinson’s disease with GAD.
Diamyd has now also raised 72.3 MSEK through a direct placement. This capital will be used to support full speed in our initiated Phase III and Phase I studies and will also secure a strong negotiating position in ongoing partnership discussions.

Last but not least. I would like to share with you an e-mail received from a happy mother:
Today, I have the answer. I know for sure that Maria IS one of 35 children in Sweden that has been given the Diamyd vaccine. That she is one out of four that entered the hospital at the right time to take part in the clinical trial and is one of those, who have results indicating that the progression of the disease has stopped.

We don’t know for how long the effect of the vaccine will last, but today life feels like a sunny summer’s day, on a bike with a nice tail-wind.
Best regards, Eva

This e-mail has meant a lot for us at Diamyd and did get right into our hearts. We are all committed to grow Diamyd Medical to become an important player in the biopharmaceutical industry.

Elisabeth Lindner, CEO and President Diamyd Medical

OTHER SIGNIFICANT EVENTS DURING THE PERIOD
Diamyd Medical’s Annual Shareholders’ Meeting was held in December, 2007. Anders Essen-Möller was appointed as Chairman of the Board and Christer Hägglund, Lars Jonsson and Sam Lindgren were new elected members of the board.

OTHER SIGNIFICANT EVENTS SUBSEQUENT TO THE PERIOD
Extra Shareholders’ Meeting - At the extra shareholders’ meeting held on March 10, 2008 in Stockholm, the shareholders approved the following: Authorization of the Board of Directors to, at one or more occasions until the next Annual General Meeting, issue a maximum of 91,000 new B shares with consideration set-off in cash or with other conditions and without regard to pre-emption rights, and warrants which will give the right to subscribe for a maximum of 991,000 B shares.

A direct placement to a limited group of professional investors has been executed of in total 991,000 B-shares at a price of SEK 73 per share. The issue raises gross proceeds of MSEK 72.3 (MUSD 12.3) in total for the Company, before issue costs. For each issued and paid new share a warrant is received free of charge, which gives its holder the right to purchase an additional B share at a price of SEK 100 during April 2009. At full use of the issued warrants an additional MSEK 99.1 (USD 16.8) in gross proceeds, will be available to the Company.

BUSINESS OVERVIEW
Diamyd Medical currently develops therapeutics from two independent platform technologies. One of these platforms relies on the GAD65 molecule and the other on a viral system delivering proteins to nervous tissue (NTDDS).

Business Model
Diamyd Medical’s business model leverages a focused in-house team with highly qualified and expert outsourcing partners, e.g. CROs and CMOs, to facilitate drug development. This model efficiently manages costs through resource flexibility while ensuring delivery of quality results as the Company’s projects move forward.

Diamyd® Clinical Trials: Type 1 Diabetes
The Swedish Medical Products Agency (MPA) and the US Food and Drug Administraion (FDA) have approved the Company's application to commence Phase III studies with the therapeutic diabetes vaccine Diamyd®.

Diabetes teams from approximately 20 Swedish pediatric clinics have met in Linköping, Sweden, to go through details for the study, which will comprise 306 new onset type 1 diabetes patients in Europe. An identical Phase III clinical study is initiated in the US comprising 30-50 clinics.
The Company has announced positive results from a completed 30-month randomized, double-blind, placebo-controlled Phase II trial in 70 children and adolescents with type 1 diabetes. Significant long-term efficacy was demonstrated in preserving beta cell function, i.e. endogenous insulin producing capacity.
In addition, the results strongly support the safety of the drug. The treatment was well received by patients, their doctors and family members. No serious adverse events related to Diamyd® treatment have been reported in the study.

Diamyd® Clinical Trials: Autoimmune Type 2 Diabetes (LADA)
Five year follow up results from a Phase IIa trial in 47 LADA patients are expected mid-2008. Previously it was reported that the most efficacious dose (20µg) significantly improved both meal-stimulated C-peptide levels and HbA1c at two years after treatment with Diamyd®.
No serious adverse events related to Diamyd® treatment have been reported in any study.

NTDDS
Nerve Targeting Drug Delivery System (NTDDS) is a replication deficient viral delivery system for proteins, in particular, for targeting nervous cells. This system has several advantages over other gene delivery strategies, as the NTDDS is nerve specific and does not cause systemic effects and does not integrate into the chromosome and therefore reduces the risk of side effects. The NTDDS lead projects are drugs for treatment of pain using Enkephalin (NP2) and GAD (DG2).

NP2 has been approved by the FDA for initiation of a Phase I clinical trial, which will be conducted in the US. The trial is designed as a dose-escalation study and is intended to test the safety of NP2 in patients with chronic pain.

GAD and other neurological diseases
Apart from being a major autoantigen in autoimmune diabetes, GAD is also an enzyme that converts the excitatory neurotransmitter glutamate into the inhibitory neurotransmitter GABA. Several neurological and movement related disorders may be connected with disturbances in the glutamate-GABA balance, and GAD may come to play an important role for treatment of such diseases.

Diamyd Medical has sublicensed rights to the GAD65 gene to Neurologix, Inc. for the development of a GAD-based therapy to treat Parkinson’s disease. Neurologix, Inc. has recently received clearance from FDA to start Phase II studies in Parkinson’s disease.

RISK FACTORS
There is no guarantee that Diamyd Medical’s research and development will result in commercial success. There is no guarantee that the trials conducted by Diamyd Medical can demonstrate sufficient safety and efficacy to obtain the necessary approvals from regulatory authorities, or that they will result in marketable products.
There can be no guarantee that Diamyd Medical will develop products that can be patented, that granted or licensed patents can be retained, that future inventions will lead to patents, or that granted or licensed patents will be sufficient to protect Diamyd Medical’s rights.
There may be a need to turn to the capital market for financing. Both the size and the timing of the Company’s potential future capital requirements are dependent on a number of factors, including opportunities to enter into collaboration or licensing agreements and the possibility of achieving success in research and development projects undertaken.
Generally a biopharmaceutical company such as Diamyd Medical is associated with high risk.


FINANCIAL PERFORMANCE
Net Sales – Sales during the 3 months period amounted to MSEK 0.673 (0.475).

Costs – Costs for the Group amounted to MSEK 17.4 (15) during the 3 months period. Costs for the 6 months period amounted to MSEK 35.2 (25) The increased costs are incurred by manufacturing cost for the planned Diamyd® Phase III program and costs for the planned Phase I study in the NTDDS-project.

Result – The net loss for the Group for the 3 months period amounted to MSEK 16.5 (13.4). The net loss for the 6 months period amounted to MSEK 33.7 (23.7).

Financial Position and Liquidity – The Group’s liquid assets amounted to MSEK 39.3 (65.7) as of February 29, 2008.

Investments – There were no investments during the 3 months period. In the 6 months period Diamyd Medical invested MUSD 1 in Protein Sciences through a convertible note.

Change in Equity – As of February 29, 2008, the Company’s equity amounted to MSEK 79.5 (133), resulting in a solvency ratio of 90.9 (93.9) percent.

Personnel – The Company had 12 (9) employees as of February 29, 2008, of which 6 (6) were men and 6 (3) were women.

Parent Company – The Parent Company’s net turnover amounted to SEK 0 as all sales are conducted in subsidiary companies. The 3 months period’s investments were none during the six months period an investment of MSEK 6.37 (MUSD 1) in Protein Sciences through a convertible loan. The net loss for the Parent Company for the 3 months period amounted to 3.1 (0.7) MSEK. The net loss for the 6 months period amounted to MSEK 6.8 (2.1). The difference between the period this year and last year is due to changes in invoicing periods for the NTDDS-project.

Share – The total number of shares in the Company is 9,910,570 as of February 29, 20087.

Conversion rate – The conversion rate used in this report is USD 1 = SEK 6.165

Warrant – Warrant program 2004/2007 expired on December 31, 2007. At that time 193,092 warrants were subscribed and paid for out of 200,000.

Employee option programs – At Annual Shareholders’ Meeting in December 2007 an employee option program were established. As of February 29, 2008 there were 150,000 outstanding employee options.

-- To read the complete report, please see attached pdf, or vist www.diamyd.com --